Civil service pay arrears at county level in China : causes and implications

中國縣級公務人員工資拖欠問題 : 成因及啟示

Student thesis: Doctoral Thesis

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Author(s)

  • Muluan WU

Detail(s)

Awarding Institution
Supervisors/Advisors
Award date4 Oct 2010

Abstract

Using county-level first-hand data and published sources, this study attempts to explore why central mandates for pay raises, a popular policy for civil servants, fail at the county level and what implications can be drawn from such failure. The government revenue in China has soared in recent years as a result of economic boom, yet civil service salaries in arrears occur in many county governments. The current literature regards weak local fiscal capacity as the main cause of pay arrears. This study proposes that central pay mandates, bureaucratic expansion, and fiscal misallocation are more important factors that elucidate pay arrears. The data on the increased wage bills of four counties in Fujian and Hubei Provinces indicate that central pay mandates pose a serious threat to county governments' pay ability. In addition, bureaucratic expansion and GDP-oriented fiscal allocation, despite affecting government finance in different ways, have both contributed to pay arrears. Since central pay mandates are not launched regularly, bureaucratic expansion and fiscal misallocation tend to have long-lasting effects on public sector remuneration. This study further explores why local leaders do not actively seek solutions to pay arrears. The Chinese government has rolled out a financial paradigm shift from economic growth to welfare spending since the late 1990s. Local governments nevertheless still adhere to the old spending patterns by allocating substantial fiscal resources to economic activities. The indifference of local leaders toward pay arrears, as this study suggests, is attributed to the incentive structure for career and economic advancements. This study attempts to contribute to a better understanding of China's central-local fiscal relations. Fiscal decentralization is supposed to help improve public services and civil service governance. However, expenditure decentralization alone, which makes local governments responsible for the bulk of public services provision, does not suffice to achieve expected results. Since the 1994 tax-sharing system has recentralized revenue-raising power, increased central mandates, albeit compensated by heightening central transfers, affect adversely local governments' ability to pay. In addition, central-local fiscal relations have experienced significant changes. Hence, this research casts doubts on the theory of market-preserving "federalism" and Chinese-style fiscal "federalism", which is largely developed against China's political environments before 1994. According to the above findings, this study suggests that the management of public sector remuneration should undergo further reforms by providing local governments with more managerial responsibilities. Moreover, since the combination of escalated central mandates with increased central transfers has not proven viable in reality, the central government should grant more budget autonomy to local governments.

    Research areas

  • China, Local finance, Intergovernmental fiscal relations, Local officials and employees, Salaries, etc, Officials and employees