Economic Transition and Labor Market Reform in China

Xinxin Ma

• Publisher: Palgrave Macmillan
• Year: 2018
• Print ISBN: 9789811319860
• eBook ISBN: 9789811319877
• Topic: Business
• Subtopic: International Business
• Index: Business

This book empirically investigates the changes in labor market structure accompanying the labor market reform in China by focusing on the labor market segmentation problems from the 1980s to 2013. The book also aims to examine the effect of labor policy reforms on individual, household and enterprise behavior, including the causes and consequences of labor market reform in China, particularly the influences of labor policy reforms on labor market performance. Offering valuable insights into the changing structure of the Chinese economy, this book will be of interest to scholars, activists, and economists.

© The Author(s) 2018

Xinxin MaEconomic Transition and Labor Market Reform in Chinahttps://doi.org/10.1007/978-981-13-1987-7_1

Begin Abstract

1. Introduction

Xinxin Ma¹

(1)

Hitotsubashi University, Tokyo, Japan

Xinxin Ma

End Abstract

1.1 Background: Economic Transition and Change in Labor Policies and Labor Market Structures in China

The level of economic development, production resources, ownership, and economic policies and systems has been transformed since 1949 when the People’s Republic of China was established. Economic historians usually divide the Chinese economy into the planned economy period (1949–1977) and the economic transition period (post 1978) (see Table 1.1).

Table 1.1

Economic transition and changes of labor policies in China

Period	Economic development level	Production factor	Ownership type	Labor policy and system
The planned economy period	Low-income country	Labor: a lot of surplus labor	SOEs, COEs	• Employment: the employment managed by the government, and long-term employment system
		Capital: scare		• Wage: the Unified Management Wage System (UMWS), the wage level, and promotion were controlled by the central government
The economic transition period	Middle-income country	Labor: surplus labor decreased	SOEs, COEs, FOEs, POEs, self-employed, others	• Employment: labor contract system is implemented in both the public sector and private sector.
		Capital: to become more		• Wage: total wage bill is determined by the government for the public sector, whereas the wage level is determined based on the market mechanism in the private sector.
				• Minimum wage system is implemented in both public and private sectors

In the planned economy period, the economic development level was poor, capital was scarce, and there was a lot of surplus labor. “Socialist remodeling” (Sherhui Zhuyi Gaizao) was introduced to enforce central government control and management for the national economy. All ownership types were transferred into the public sector. By 1956 this included government organizations, state-owned enterprises (SOEs), and collectively owned enterprises (COEs). Figure 1.1 shows the proportions of various ownership types in China from 1949 to 1956. The share of privately owned enterprises (POEs) and foreign-owned enterprises (FOEs) decreased dramatically from 55.8% in 1949 to 0.0% in 1956, whereas the share of public sector (government organizations, SOEs, COEs, and joint-owned enterprises¹) increased from 44.2% in 1949 to 100.0% in 1956. From 1956 to 1977 the government managed production, capital, and wage/employment of labor in the public sector. In addition, to promote the “Heavy Industry Development” policy, the Hukou system (population registration system for rural and urban regions) was implemented from 1958, and migration from the rural regions to the urban regions was discouraged. Thus, it can be said that there was no competitive labor market in China in the planned economy period.

Fig. 1.1

Proportions of public sector and private sector from 1949 to 1956 in China. Source: Data based on National Bureau of Statistics (1959), page 32

From 1978, the government began economic reform and gradualism system transition. In the rural regions the government implemented the Household Land Contract System and from the 1980s reformed the agriculture production price determination system, and the market mechanism for agricultural production began to influence prices. Urban labor market reform commenced from the 1980s and may be divided into four main movements as follows.

First, the government promoted SOEs reform. In the 1980s the government delegated some production and profit distribution authorities to enterprises. The government implemented the reform of separating the ownership and management of enterprises, and it only remained as the owner of SOEs at the beginning of the 1990s. In the latter half of the 1990s, the government carried out a policy “to control large SOEs, and to release small-sized SOEs” (Zhuada Fangxiao), and promoted the privatization of small and medium-sized SOEs. From the 2000s the government implemented policy so the SOEs became listed enterprises and controlled these large SOEs through the State-owned Assets Supervisory Committee (SASAC). The government promoted foreign direct investment (FDI), and FOEs were permitted from the 1980s. From the 1980s the government also promoted the self-employed sector and POEs. During the economic transition period SOEs, COEs, FOEs, POEs, and the self-employed sector were the predominate ownership types. Even though the government still manages and controls the wage and employment of labor for the large SOEs and government organizations, they remain influenced by labor market mechanisms in the private sector (FOEs, POEs, and the self-employed sector).

Figure 1.2 shows the shares of worker numbers by ownership types. It is clear that the workers in the public sector (government organizations and SOEs) decreased dramatically from 1978 to 2016, and the workers in the private sector, including COEs, POEs, and FOEs, and the self-employed sector, increased. Particularly, the number of workers in the public sector decreased dramatically from 1998 when the government enforced SOEs reform. It is also observed that the increase of workers in the informal sector, the self-employed sector, is marked: it increased from 150,000 in 1978 to 128.62 million in 2016.

Fig. 1.2

Changes of worker numbers by ownership sectors from 1978 to 2016 in China. Note: Data based on National Bureau of Statistics China Statistical Yearbook 2017. Source: author

Second, although the Chinese government promoted privatization for middle- and small-sized SOEs, it still controlled and managed the large SOEs related to the country’s security and economy. The government published regulations to prohibit entry to some industry sectors for the POEs and FOEs, and provided financial preferential treatment to these protected sectors. Thus, it is thought there is segmentation of the public sector and the private sector. As a result, wage gaps formed between various ownership sectors. Figure 1.3 shows the wage levels by ownership sectors. It is observed that the average annual wage level is higher for the private sector including POEs and FOEs than for the public sector, including SOEs, from 1995 to 2004; it is higher for the public sector than for the private sector after 2005, and the wage gap between the public sector and the private sector increased from 2014.

Fig. 1.3

Changes of average wages by ownership sectors from 1995 to 2016 in urban China. Note: (1) Data based on National Bureau of Statistics China Statistical Yearbook 2017. (2) The values are average annual wages. They are nominal wages. (3) Public includes government organizations and SOEs; Others are composed of FOEs, POEs, and other ownership-type enterprises. Source: author

Third, since the Hukou system was deregulated in the 1980s, much surplus labor moved from the urban to the rural regions and the number of workers in the primary industry sector decreased. Figure 1.4 summarizes the change in the number of workers by industry sectors. Labor in the primary industry sector decreased, whereas the amount of labor in the secondary and tertiary industry sectors increased from 1952 to 2016. Notably, the proportion of workers in the primary industry sector decreased greatly after 2004, from 49.1% in 2003 to 27.7% in 2016. Figure 1.5 shows the total numbers of migrant workers increased from 121 million in 2000 to 282 million in 2016, and the proportion of migrant workers to the total workers in rural regions, including migrant workers with rural registration, increased from 19.8% in 2000 to 43.8% in 2016. It may be that the amount of surplus labor decreased with the decrease of labor in the primary industry sector and the increase of migrants. Even though the number of migrant workers has greatly increased, the Hukou system still influences wage, employment, and social security. Work conditions are worse for migrants than for local urban residents. For example, most migrants who work in the POEs, FOEs, and the self-employed sector earn low wages, whereas most of the workers in the public sector, including government organizations and SOEs, are local urban residents and they earn a higher wage (Ma 2018).

Fig. 1.4

Changes of labor numbers by industry sector from 1952 to 2016 in China. Note: Data from National Bureau of Statistics China Statistical Yearbook 2017 Table 4–3. Source: author

Fig. 1.5

Changes of numbers of migrant workers from 2000 to 2016 in China. Note: (1) Data from National Bureau of Statistics 2016 Migrants Monitoring Report. http://​www.​stats.​gov.​cn/​tjsj/​zxfb/​201704/​t20170428_​1489334.​html (accessed on April 16, 2018). (2) Migrants (B) is the total number of migrant workers. (3) Share of migrant workers = migrant workers/total workers including migrant workers and workers in rural regions. Source: author

As previously described, during the period of economic transition the Chinese labor market appears segmented by the public sector and the private sector, the informal sector and formal sector, and migrants and local registration residents. It is thought that this labor market segmentation may be the cause of income inequality in China, and it is the main feature of the Chinese labor market during the period of economic transition. Thus, Part I of this book will focus on labor market segmentation issues.

Fourth, during the economic transition period the government implemented a set of new policies that may have affected labor market outcomes. For example, the minimum wage system was implemented from 1993; the higher education expansion system was implemented from 1999; and the social security systems including the pension system were reformed an...

Table of contents

• Cover
• Front Matter
• 1. Introduction
• Part I. Labor Market Reform in China: Consequence and Cause
• Part II. Policy Reform and Its Impact on Labor Market Performance
• Back Matter