Draft:History of the labor market (China)
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Prior to 1978 On the whole, the pre-reform Chinese economy was not favorable to worker advancement. Dong and Putterman (2000) studied this period, noted the capital intensity of industrial growth, and provided the following estimates. Between 1952 and 1977, the annual rate of growth of industrial output (as measured by the net industrial output at 1952 prices of independent accounting units within state industry) was 9.59 percent. Industrial capital assets grew at 11.08 percent. But employment grew at only 5.98 percent, and real wages grew at only 0.1 percent. In the late 1970s, the ratio of China's industrial GDP share to its industrial employment share was 3.2:1, while it was only 1.7:1 for other low-income economies, excluding India.
China operated a very comprehensive food allocation system during the 1960s and 1970s. As such, it made efforts to maintain the per-capita food supply of the urban population. Thus, hiring workers from the agricultural cooperatives and increasing the scarcity of farm output required that a higher price be paid for agricultural goods. Further, the movement of agricultural workers into the urban areas required significant public expenditures on housing and various social services.
These labor cost issues motivated the central government to favor the development of highly capital-intensive industries and to use its monopsonistic presence in the labor market to limit hiring. As will be seen, state firms actually found themselves with an excess pool of labor in the 1990s as reforms diminished the monopsonistic power of the state sector, leaving these overcapitalized enterprises with an excess supply of unskilled workers.
Nonetheless, there was considerable migration from the farm areas as workers (in large part younger workers) came to urban areas, enticed by the prospect of better wages and economic futures. Urban migration arose, in part, from two decades of slow growth in the rural sector.
State monopsony power combined with this large migration to create a worrisome situation for a stability-conscious Chinese government--unemployment. The late 1970s saw an increase in the number of unemployed school graduates as China abandoned its policy of resettling urban youth in the countryside. And, consequently, a large number of these young, unemployed workers began to move back into the cities, threatening urban order. Sabin (1994) cites a figure of 5 million to 6 million urban unemployed in the 1978 to 1980 period, but mentions that other sources which account for returnees from the countryside put the estimates much higher. To prevent urban unrest, China's leadership had to address the growing clamor for jobs.
1979 Early reform-era policy changes came from the city governments which began to encourage job growth outside of the state-owned sector on an experimental basis in order to reduce unemployment. Urban job seekers were allowed to find work in the state, collective, or small-scale private sector through labor bureaus, group employment, or independent efforts. In the years that followed, deliberate steps were taken to encourage the growth of urban collectives.
1981 The State Council issued the first set of comprehensive regulations on individual ventures. In doing so, it declared that the individual economy was an important complement to the state and collective sectors.
1986 China gave a further boost to the foreign-funded sector by enacting national regulations extending extra preferential treatment to export-owned and high-tech businesses set up with foreign capital. Under these regulations, foreign-funded firms could determine the size of their labor force and, more interestingly, had the right to set the form and level of wages.
Late 1980s some of these restrictions have been relaxed; and a mass labor exodus from the countryside has resulted as rural workers continue to seek improved wages and employment prospects in the urban economy. While rural workers have been able to move out of their home villages, significant problems still keep migrants from settling into cities. The remaining urban segregated labor market limits migrant access to a variety of jobs. Social service deficiencies prevent migrant workers from obtaining housing, medical care, and children's education. Some migrants have been expelled due simply to stability concerns. As a result of these difficulties, China's emerging labor market is still primarily regional in scope, leading to regional wage disparities.
1999-2001 In the urban collective sector, wage growth also has been strong, growing at an eight-to-nine percent annual rate and 6.5-to-7.5 percent annually in manufacturing. Interestingly, wage growth in the "other types of ownership" sector was somewhat weaker than in the state-owned sector an annual nine-to-eleven percent in the 1999-2001 period. Manufacturing wage growth in the "other" sector was roughly nine percent during this period.
China and ILO
In 2001, the Ministry of Labor and Social Security (MOLSS) and the ILO agreed on a program of cooperation to support labor reforms in China based on the ILO’s goal of Decent Work. The program includes: collaboration to promote international labor standards in China; analyzing the labor market and working to improve labor market statistics; strengthening training services; promoting an expansion of the coverage of social security schemes; advising on improving occupational safety; and promoting tripartite discussions between government, employers, and workers. The program promotes training in a numbers of areas. ILO will collaborate with MOLSS to design a range of retraining and job creation schemes, including for xiagang and disabled and disadvantaged groups. It also aims to improve entrepreneurial training and micro-credit facilities to medium and small-sized enterprises. In addition, the ILO will work with the MOLSS to improve employment services to provide better matching of labor supply and demand. Social protection is to be improved. The aim is to strengthen the governance and administration of social security, particularly the unemployment benefit system. The program also aims to strengthen provision for employment injury insurance, while working to improve national safety and health programs.
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