Abstract.We analyse the unemployment problem in the largest Chinese city, Shanghai, based on a survey of the unemployed conducted in late 1989. We find, as expected, that unemployment is particularly serious among school‐leavers and contract and temporary workers, but also find a surprisingly high incidence of unemployment amongst permanent state employees and relatively long unemployment durations. The Shanghai unemployed rely heavily on occasional work for support, and only a small proportion‐receive state benefit. We identify problems of interpretation stemming from the stock‐sampling nature of the survey, and use non‐parametric methods to reveal an underlying strong downward movement in individual re‐employment prob