We investigate the causes of rising labor redundancy in China’s state industry, using a panel of data for about 700 enterprises covering the years 1990-1994. We find that over-manning emerged as a widespread phenomenon in industrial SOEs in the early 1990s. The immediate causes of redundancy were the increasing product market competition, downward shifts in demand, wage increases apparently driven by the need to track increasing wages paid by non-state enterprises, shortness of financial resources, and binding constraints on downward adjustment of employment.