Prior to its economic reforms, China did not have an operating labor market. The government
assigned workers to firms rather than allowing them to choose their own place of work and used hukou
residency policies to keep rural people from migrating to cities. Firms hired workers that government
labor bureaus assigned to them regardless of economic need and paid the workers according to a
national wage grid from a payroll budget set by the government. As China reformed its urban economy
from the 1980s through the 2000s, the government relaxed its control of workers and firms and gave
greater leeway to supply and demand to set employment, wages, and working conditions. This essay
tells how China moved from state determination of labor outcomes to a genuine labor market and how
the new labor market with Chinese characteristics has operated. It examines three big labor problems
that face China on its path of continued economic growth: labor-management conflict; absorbing
millions of university graduates into fruitful jobs; and bringing rural persons and informal sector
workers fully into the modern economy.