Using the Chinese Household Income Project (CHIP) data, we find a 30 percent raw differential in earnings in favor of state workers in 2002. We examine the degree to which this differential is a pure premium by using a Heckman two-step selection model, where we instrument workers’ preference for state jobs with family political connections, among other factors. We find that 22 percent of the observed earnings differential is a pure premium to a worker in a state job in urban China. In the absence of a political transition in China, state jobs remained the privileged constituency in a dual-track transition that attracted the best politically connected workers in urban China and offered them a pure earnings premium.

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