Situated in China’s market transition, this study examines the relationship between economic sector and a worker’s happiness in post-reform urban China. Using datasets from the Chinese General Social Surveys 2003, 2006 and 2008, we find that workers in the state sector enjoy a subjective premium in well-being – reporting significantly higher levels of happiness than their counterparts in the private sector. We also find that during a period when a large wave of workers moved from the state sector to the private sector, those remaining in the state sector reported being significantly happier than did former state sector workers who had moved, whether the move was voluntary or involuntary. We attribute the higher level of reported happiness in the state sector than in the private sector to the disparity by sector in the provision of social welfare benefits. Those who made voluntary state-to-private moves experienced a trade-off in enjoying higher payoffs while losing job security, whereas involuntary mobiles experienced downward mobility and suffered a long-term psychological penalty.

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