Xiagang - 31. Xiagang, is a system of layoffs used in the...

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31. Xiagang, is a system of layoffs used in the SOEs that is intended to counteract the potential problems caused by a lack of social insurance system for the unemployed. Xiagang was designed to fit the special circum-stances of the transitional economy and avoid the rapid ‘big bang’ process of privatization that distinguished the Russian model. The process was quite different from redundancy in advanced industrial economies. The SOE retained a concrete set of obligations to laid off employees as well as a formal, albeit pared down, labour relationship for a maximum period of three years. While developed nations generally have unemployment benefits that allow the laid off workers to claim a portion of their pay for their livelihood, China in the 1990s clearly lacked a systematic support for the unemployed. Since laying off workers in the under performing SOEs directly violates the fundamental purpose of the SOEs up to this point, maximizing employment, Chinese government needed to use Xiagang, providing subsistence level welfare payment to the laid off workers. SOEs have chronically suffered from inefficiency of labor due to their tendency to hire far more workers than needed in order to increase the rate of employment in the region. In other words, those workers who went home from enterprises due to poor performance of enterprises but still maintained some nominal relationship with their enterprises as these employees received subsistence level of salary or other kinds of benefits from their enterprises. To reform the SOEs and reduce the losses made by such inefficiency, layoffs were necessary, although they were difficult to institute for political reasons. To compromise these two conflicting needs, China used Xiagang, a way of controlled layoff that allowed them to manage the number of laid off workers while restructuring the loss making SOEs and their debts. The danwei served as the all important link between the state and urban working class in which the former directly supervised the allocation of employment for the latter. Full urban employment was the desired goal, often at the expense of labor productivity. At the same time, controlling the number of unemployed (or laid off) workers allowed the government to effectively aid these laid off workers in finding re-employment. Since the state took care of their basic needs, the laid off workers did not cause a great deal of social unrest, although the number of the laid off workers were immense. Still in the Danwei system, most of the laying off and re-employing was done at the local level, since the central government lacked the ability to micromanage the layoffs. Nonetheless, the underlying system of subsistence level support for the laid off workers was provided mostly by the central government, as well as the big picture of managing how much of the work force would be laid off at any one point in time. 32. In a corporation, especially a public held corporation, there is always a conflict of
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Xiagang - 31. Xiagang, is a system of layoffs used in the...

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