Factor Liberalization And Implicit Incentive Of Managerial Labor Market

After scrutinizing the reform history of China's state-owned enterprises (SOEs) with firm theory that a firm is generally the nexus of a series of contracts, this study shows that the liberalization of production factors is the key to the further reform of the SOEs, and that managerial labor liberalization is the weakest point among all the production factors.An orderly managerial labor market is the carrier for the liberalization of managerial labor, whilst the implicit incentive from the managerial labor market is an important supplement to the explicit incentives which are based on the agent's performance. By using the principal-agent model, this study draws a quantitative analytical conclusion of incentive cost saving through the implicit incentive system of the managerial labor market. After a literature review of the implicit incentive study, this study first clarifies the implicit incentive system, and then analyzes the SOEs' manager selective procedure and its disadvantages based on the mathematic model provided. Under the superior-appointment select procedure, we present the SOE managers' multitask hypothesis, it includes: 1) operation task, 2) political task, and 3) the superior's preference. Then develop a total utility model for the SOE manager and get two maximal utility conditions.Using the multi-task principal-agent model, this study analyzes the SOE manager's incentive issues in two aspects, the tasks are inter-independent or inter-dependent. And then comes to the conclusions that, while the tasks are inter-dependent, the incentive contract with a SOE manager is not only multi-tasked, but also threshed. That is, the incentive for a SOE manager is positive only that the SOE manager's political performance and preference performance satisfy the threshed incentive conditions simultaneously; otherwise, it is negative. The threshed incentive conditions are thereby presented in this article. Under the incentive contract above, the SOE likely turn into a political bureaucracy, so market selection of SOEs' managers, or managerial labor liberalization, is naturally the conclusion for the SOEs' reform.Through a simplified model of managerial labor liberalization, this article put forward some recommendations for the construction of the Chinese managerial labor market. Moreover, based on the analysis of the present new issues of MBO and ESO, this article emphasizes that the reform of the SOEs should be implemented in its inherent logic order.