Ronda Lee

Economics News Report
Group members: Ronda Lee (18), Maggie See (30)
Newspaper collected: South China Morning Post [25/11]
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.
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.
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.
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.
(Fig. 1)
This graph shows that there is an increase in supply of labour.
supply curve (S1) shifts to the right (S2).
The original
Surplus1 Surplus2
Market wage
(Fig. 2)
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.