Abstract: Reducing the informal employment is an important channel of improving the employment quality and building harmonious labor relationship. Using the World Bank's Chinese firms' survey data in 2005 as sample, this paper studies the effect of political connection on the "dual system" of employment. On the basic of measuring the "dual system" of employment using the temporary workers' proportion, the results indicate that political connection can reduce the "dual system" of employment, and the effect is more significant in the regions with more government regulation.Additionally, the impact of political connection on the "dual system" of employment is closely related to firms' factor intensity and property right. Political connection is helpful to reduce the "dual system" of the labor-intensive firms, state-owned firms and private firms, while political connection has no effect on capital-intensive firms and foreign firms. These findings not only deepen our understanding of the hand of government intervention under economic transition background, but also provide useful policy suggestions of building harmonious labor relationship.

Key words: political connection, the “dual system&rdquo, of employment, permanent workers' proportion, government intervention