1. Introduction
Since the late 1990s, China’s labor market has witnessed great depression indicated by increasing unemployment rate and declining labor force participation rate. The causes of the severe unemployment are threefold. First, due to the downturn of macro economy and rapid industrial structural change in late 1990s, the state-owned enterprises (SOEs), which lost their comparative advantage and competitiveness, have not been able to fully utilize their production capacity and became loss-makers. Second, the radical reform of SOE employment system, known as “breaking up the iron-rice-bowl”, has further exacerbated the situation of unemployment. Third, massive rural laborers have migrated to cities to seek urban jobs and bring competition into urban labor markets. As a result, several million workers have been laid-off from SOEs, becoming unemployed or being out of labor force.
In general, since the late 1990s, there have been widely existing doubts and confusions in research circle about statistical figures on employment and unemployment, which leads to misunderstanding of the real situation in labor market developments and leads to a conclusion that the current situation of unemployment in China is not manageable. Meanwhile, those confusions prevent policy-makers from identifying policy priority to copping with the situation. To proper understand China’s labor market requires us to bear in mind that the Chinese economy is a fast growing and drastically changing economy. With the fastest growth rate in the world, it is unquestionable for China to witness an increase of total employment, whereas industry-structural change and institutional transition generate double effects. First, as continuation of the structural change in the entire reform period, the adjustment of industrial structure required by the WTO membership commitments leads the economy to follow its comparative advantage, which is embodied in labor-intensive industries, and therefore tends to create more jobs. Meanwhile, the same structural adjustment generates structural unemployment now that it requires the rise of new sectors with comparative advantage and fall of those without comparative advantage. Secondly, the market-oriented institutional transition has fostered labor market and made the labor force allocation much more efficient than before. On the other hand, the marketization inevitably involves the reform of breaking the iron-rice-bowl, which brings about the redundant workers and staffs being laid-off from their previous workplaces.
The serious unemployment generated the following two effects. The first effect is that it motivated to some extent the policy intention of the local governments to protect the local employment. The local governments have to be responsible for social stability at a local level and thus often implement some short-term policies that obstruct the expansion of labor market (See Cai, Du and Wang, 2001). More often than not, local governments intervene in labor adjustment in enterprises and sometimes ask enterprises not to fire workers with local hukou. In order to reduce the employment competition between outside and local laborers, they ask enterprises not to hire outside laborers and increase costs of labor migration. The second effect is that the severe employment situation makes the local governments depend on the labor market to solve the problems of employment and reemployment and adopt more deregulated policies encouraging the developments of labor market, small and medium-sized enterprises and the diversified employment. These two effects have both led to informalization of employment.
The rest of the report is organized as follows. In section two, we introduce data used in this report, including information on sampling methods, size of survey samples, sources of other references, etc. Section 3 discusses the labor market development both in FGRs and in other regions. Apart from the issues analyzed in the sister paper of this one, we try to reflect the labor market development from some firm level characteristics and the patterns of job turnovers happened on labor market in recent years. In Section 4, we move to the discussion of new trend of informalization on China’s labor market in recent years. Based on our own definition of informal employment and taking the advantage of two round urban household survey data, we display the size, components, characteristics, and impacts of informalization. In the final section, we draw some policy recommendations according to the empirical studies of this report.
