Economics News Report Group members: Ronda Lee (18), Maggie See (30) Newspaper collected: South China Morning Post [25/11] Content: This newspaper cutting talks about more job opportunities are needed to meet the demand in China. It states that there will be more than 2.8 million university students enter the job market next year. As the government is already facing the problem of unemployment, the increase of supply of labour will further put pressure on the government. The government has to create three million jobs and to keep China’s urban unemployment rate at 4.5 percent. The increase in supply of labour next year would make the labour market hyper-competitive. The future graduates may start looking for their jobs a long time before graduating. To help the graduates in this problem, there will be a series of activities such as a “College Graduates’ Employment Service Week”. This can provide more job opportunities to the graduates. Moreover, this problem will be the main concern of the government next year. So, the problem of unemployment is hoped to be improved and keep the unemployment rate at 4.5 percent. Analysis: CHINA: PLANNED ECONOMY China started to become a planned economy since the outbreak of Cultural Revolution. Resource allocation is decided by central planning in the past. Most productive resources were owned and controlled by the Chinese government. The government has the state ownership of resources such as railways and weapons. There was only a limited scope for private ownership of resources. Besides, for the “what to produce” question, only the Chinese government drew up most of the production plans and then send to the production units in the form of a command. And hence people in China had little freedom to make decisions. Also, the Chinese government arranged their jobs. Therefore, unemployment problem was less likely to be happened. However, China enacted economic reforms in 1980s. It is in progress to act more likely as a market economy. That’s means that there is more freedom for the people to make their own production decisions. In addition, they are allowed to own productive resources. So unemployment may happen because some people are free to choose their jobs. INCREASE IN SUPPLY OF LABOUR As we know that, there are a sharply increase in graduates in 2004. The number of new graduates is about 2.8 million, which are 680000 more than this year. In fact, China is facing an unemployment problem at this moment for the reason that the market price is greater than the equilibrium price. Then, the quantity demanded of labour in China is smaller than the quantity supplied of labour, excess supply of labour occurs and thus some labours are being jobless. This causes unemployment. Nevertheless, seeing that there are more and more graduates in next year, this leads to an increase in supply of labour. (as shown in the fig. 1) The gap of the excess supply is being widened. As a result, excess supply of labour increases and consequently, the unemployment rate in China rises as well. It is difficult for China to keep the urban unemployment rate at the targeted 4.5 per cent. Moreover, since the graduates from universities in China next year are all well educated and are professional. They may expect a higher wages and benefits; they are not willing to accept lower wage rates. Therefore, the market wage is above the equilibrium wage and quantity supplied is increasingly larger than the quantity demanded. The excess supply of labour cannot be solved or decreased. This will only worsen the unemployment problem in China and the unemployment rate is not able to drop. SOLUTIONS: As the market wage is higher than the equilibrium wage, the problem of excess supply can not be solved. Only when the workers can accept a lower wage, and the market price decrease to the equilibrium, there will not be a problem of excess supply of labour and unemployment. Or when there is an increase in demand for labour, until the market price meet the equilibrium. Demand for labour equals to the supply of labour, there will not be unemployment. GRAPHS P S1 S2 P1 (Fig. 1) D1 0 Q1 Q Labour This graph shows that there is an increase in supply of labour. supply curve (S1) shifts to the right (S2). P The original S1 Surplus1 Surplus2 S2 Market wage Pe (Fig. 2) D 0 Qd < Qs1 Qs2 Q Labour The market wage is above the equilibrium wage (Pe). The quantity supplied is larger than the quantity demanded. So, there is a surplus (1). As the supply of labour increases, the supply curve shift to the right (S2). The surplus thus increases to surplus 2. The unemployment rate increase.