Are State-owned Enterprises Really Less Efficient? Measuring Enterprise Efficiency from a Labor-oriented Perspective

Mainstream economics typically uses indicators like profit margins and total factor productivity (TFP) to conclude that state-owned enterprises (SOEs) are inefficient. However, these capital-centric metrics primarily measure the extraction of surplus value rather than genuine value creation. Drawing on Marxist political economy, this paper develops a “labor-oriented” index to evaluate comprehensive enterprise efficiency. Utilizing firm-level data from China Industrial Enterprises Database (1998—2007), we compare efficiency across different ownership types. Our findings reveal two key points. First, while SOEs report lower profit margins than private firms, their comprehensive efficiency is significantly higher. SOEs allocate a larger share of revenue to employee compensation and taxes, reflecting their active role in safeguarding labor rights and fulfilling social responsibilities. Second, although profit margins rose across all enterprise types during the sample period, the drivers differed fundamentally. In the industrial sector, SOEs profit growth stemmed from substantive improvements in value creation, whereas private enterprise profit growth relied heavily on squeezing labor income and leveraging preferential tax policies. This study offers a novel labor-oriented framework for evaluating enterprise efficiency, providing critical insights for SOE reform and implementing the “Investing in People” strategy.