Title: Labor Market Dynamics and Long Term Unemployment in Urban China: The Role of the State Sector Speaker: Naijia Guo, University of Hong Kong Host: Jipeng Zhang, Associate professor, RIEM Time: 14:30-16:00, April 29, Friday Venue: Yide building H511, Liulin Campus Abstract: We study the role of state sector employment on overall exibility of labor market, using China as an example. Using unique matched monthly Urban Household Survey data that are representative of the Chinese urban households for the period of 2004-2006, we first document that labor market mobility of China is very low and the problem of long-term unemployment is severe. The monthly transition rates from un- employment to employment is only 2.7%, and the transition rates from unemployment to state-sector employment is especially low. Moreover, 85 percent of the unemployment has duration greater than 12 months. We then develop a search and matching equilibrium model to understand the potential explanations of the long-term unemployment. We extend the search and matching framework of Mortensen and Pissarides(1994) to a two-sector model with on-the-job search. The model captures three possible ineciencies of the state sector: low productivity, low lay-o_ rates, and high tax rates.