We have known that preference for redistribution responds to people’s perception of social equality. Those who believe that outcomes in life are subject to uncontrollable factors are more in favor of redistribution. This paper examines how exogenous social shock would influence redistributive preference and perception of equality by exploiting a special “natural experiment” in China, the massive labor retrenchment in the 1990s. I find that laid-off workers from the transformation of SOEs show stronger support for redistribution than other groups. They also tend to overemphasize the role of luck and government intervention in life. By using a difference-in-differences design I rule out the effects of unemployment as well as other individual characteristics. Further evidence indicates tha...[ Read more ]

We have known that preference for redistribution responds to people’s perception of social equality. Those who believe that outcomes in life are subject to uncontrollable factors are more in favor of redistribution. This paper examines how exogenous social shock would influence redistributive preference and perception of equality by exploiting a special “natural experiment” in China, the massive labor retrenchment in the 1990s. I find that laid-off workers from the transformation of SOEs show stronger support for redistribution than other groups. They also tend to overemphasize the role of luck and government intervention in life. By using a difference-in-differences design I rule out the effects of unemployment as well as other individual characteristics. Further evidence indicates that while laid-off workers’ preference is not driven by age, particular cohort effect or transformation wave, their length of service in the state sector has significant positive effect, a fact that helps us understand the variation of the impact from “smashing the iron rice bowl”.