China’s Evolving Labor Market
1
Explaining
China’s
success—A
labor market
perspective
•A demographic story
•A transition story
•A development story
2
Demographic Dividend 1978-2011
• Labor force：Baby boomers in the labor market
oLabor force (1982-2011): 625 - 1003 million
oLabor force/population (1982-2011): 61.5% -74.4%
• Dependency ratio
oYoung dependency ratio (1982-2011): 54.6% - 22.1%
oTotal dependency ratio (1982-2011): 62.6% - 34.4%
Demographic dividend = Growth?
3
Demographic Transition and GDP
Y = AKL
• Baby boomers are young adults, low birth rate
–
–
–
L: abundant labor, low dependency ratio
K: high saving rate, investment, trade surplus
S+(T-G)=I＋trade surplus
A: more people, more innovation
• Good time for China: 1978-2013
(for Japan and Europe: before 1990s)
4
Economic
transition
• A process to restore the labor market
and household production roles
oHouseholds are given more freedom
in allocating their time
oEmployers can make hiring/firing
decisions and set wages
oMore reward to human capital and
effort
• This means
1. Wage will increase
2. Unemployment will appear
3. Job mobility will rise
4. Inequality will rise
5
Urban Employment : 1978-2010
Total, million
500
State-owned & Collective-owned, million
Others, million
450
400
350
300
250
200
150
100
50
0
1978
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
Notes: Others include people who work in cooperative enterprises, joint ownership enterprises, limited liability corporations, share-holding corporations limited firms,
enterprises with funds from Hong Kong, Macao, and Taiwan, foreign funded enterprises and individual.
Data source: China Statistic Yearbook
6
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
China’s Gini Coefficient over time (Zhang, 2020 JEL)
7100
0.50
6100
0.45
5100
4100
0.40
3100
0.35
2100
0.30
1100
100
0.25
per capita GDP (in 2010 $)
Gini
7
• The transformation of an agricultural economy
to a more industrialized one
• The Lewis theory(Arthur Lewis got the
The Lewis
Model of
Development
Nobel Prize in 1979)
o Two sectors: agriculture (surplus labor)
and industry
o Labor transfers to modern sector
o Modern sector grows, which drives
economic growth
o Wage rate in urban sector is constant: a
little higher than the subsistence wage in
rural areas
8
Industrialization
Employment profile by sector
% of total employment
1980
2010
2018
100% = 423million
100% = 761 million
100% = 775 million
18%
Industry
69%
Agriculture
13%
Services
36%
29%
26%
Industry
Agriculture
Agriculture
35%
Services
28%
Industry
48%
Services
In the last three decades in China
▪ Proportion of agricultural workers has reduced by 29 percentage points
▪ A total of 316 million jobs have been added to industry and services
Data source: National Bureau of Statistics of China
9
Takeaways: the China Model 1978-2011-from the Perspective of Labor Market
• Labor force: young and growing
o Working population 1982-2011: 625 million to 1003 million
o Working population/Total population 1982-2011: 61.5% to 74.4%
• Improving human capital (next week)
o Average years of schooling 1998-2008: from 6.2 to 8.9 years
o College enrolment rate (school-age cohorts) 1998-2010: 9.8% to 26.5%
• Transition: from plan to market
o Relaxed restriction on labor mobility since early 1990s
o Allow unemployment, non-state employers, wage gaps…
• Development: from agriculture to industry/services (Lewis Model)
o Share of labor force in agriculture 1978-2010: 70.5% to 36.7%
Question: will the same story continue in next 30 years?
10
Into the Future
• Falling labor force
• Labor transfer process slowing down
• The hope is human capital and AI
Source: Liang (2011), Hu et.al (2010)
11
The End of Cheap Chinese Labor
by Li, Li, Xiong, Wu (2013) published
in Journal of Economic Perspectives)
12
Monthly Earnings in China and Other Developing Countries
Dollar
1200.00
1038.64
1000.00
800.00
720.16
621.01
591.84
600.00
585.63
458.30
400.00
200.00
183.48
0.00
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Notes: The monthly earning for India is the monthly earning of factor worker in India
Data source: CEIC Data, Statistical Year Book India 2018
China
Indonesia
Thailand
Brazil
Keyna
Serbia
Mexico
India
Rising Wages in China
Growth of Wage vs. Real GDP per Capita
14%
Real GDP per Capita Growth
12.8%
Real Wage Growth
12%
10%
9.2%
8.5%
8%
6%
5.9%
4%
2%
0%
1978-1997
1997-2010
14
A Stroller factory I surveyed
Wages versus Productivity
Wage vs. Labor Productivity
(2010 USD)
14%
Labor Produtivity Growth
12%
Wage Growth
12.8%
10%
8.7%
8.5%
8%
6%
5.8%
4%
2%
0%
1982-1997
1997-2010
16
Wages versus Productivity
Relative Unit Labor Cost: China/U.S.
80%
74%
Unit Labor Cost =Wage/Labor Productivity
70%
60%
55%
50%
46%
43%
40%
40%
39%
1995
2000
30%
1980
1985
1990
2002
17
Wages versus Productivity
Relative Unit Labor Cost in 2002
75%
Catch up in 2022
70%
70%
65%
63%
60%
55%
China/Malaysia
China/Korea
18
Why have
wages been
increasing?
• Reforms pushing up wages (above)
• Labor shortage
o Population growth slowing down
o Structural change (migration)
slowing down
19
From Demographic
Dividend to Deficit
Now: No More Demographic Dividend
Falling birth rate means falling working population in 20 years
Birth Rate, %
Growth of Working Population, %
2.5
3
2.3
2
2.1
2012-2015
1.9
1
1.7
0
1.5
1.3
-1
1.1
-2
0.9
-3
0.7
0.5
1970
1980
1990
2000
2010
Birth rate,%
Source: China Statistical Yearbook (2010)， Hu et.al (2010)
2020
2030
2040
-4
2050
Growth of Working Populaiton, %
21
Growth of Migrants Slows Down
Migrants, million
Growth of migrants
300
25%
250
20%
200
15%
150
10%
100
5%
50
0%
0
-5%
1982
2000
2010
2012
2014
2016
2018
Data source: Chinas National Statistical Bureau
22
No More Young Workers in Rural China
Age Cohorts
Percentage with off-farm work in, %
1995
2004
2007
16-20
23.7
74.3
97.7
21-25
33.6
80.7
86.5
26-30
28.8
70.5
77.1
31-35
26.9
62.0
65.6
36-40
20.5
53.7
73.5
41-50
20.8
41.5
54.3
Source: Rozelle et al. (2008)
23
People will retire at an older age
Factories and Labors:
Move from Coastal to Inland Areas
• Foxconn moved its
major plants away
from Shenzhen to
inland provinces
such as Hebei,
Henan and Shanxi
25
Barrier of Migration:
Hukou System (household
registration)
• Established in 1950s
– Associated with public welfares
(education, insurance, pension,
housing ….)
– Restrict internal migration
• Chinese are born with a hukou,
following parents
o Rural or urban
o Location (city/county, province)
• 1950-1980s: Can only live and work at
the hukou place; were not free to move
• Relaxed since the mid-1990s, allowing
people to work in other localities, but
no social welfare
Takeaways
• Chinese labors were "cheap"
(wage/productivity) in the 1980s and
through the late 1990s
Li, Li, Xiong and Wu (2013)
• Now, the “under pricing” is coming to
an end
• China is becoming a middle-wage
country
27
What will happen next?
• When wages rise, low wage industries EXIT (move
to Vietnam / Bangladesh / etc.)
• Production will be done by
oMachines
oHigh-skilled workers (needs education)
28
Workers replaced by machines
The Rise of
Robots in
China
By Cheng, Jia, Li and Li (2019), published
in the Journal of Economic Perspectives.
30
• In 2016, China’s factories
China: the
most
important
market for
robots…
bought 87,000 industrial robots,
30% of all worldwide
• all of Europe and the Americas:
97,300 units
• China still lags behind at 49
robots per 10K workers (vs. 500
in S. Korea, 176 in the U.S.)
• China is likely to become even
more important (as we will
show…)
31
Aggregate patterns
over time (stock)
• operational units
by countries: Top 5
account for 72% of
world units.
32
The BIG question: why do Chinese manufacturing
firms quickly adopt robots?
● Isn’t that China has cheap and abundant labor? (we have learned in
today’s lecture that this is not true anymore)
● Do Chinese worry about robots will replace workers?
● What’s the role of policies on robot adoption?
33
Three stories
• Supply (technology)
• Demand due to market
factors
• Demand induced by
government policies
34
Supply factor: technology
The current robot technology is particular suitable for automotive and
electronics.
0.6
0.4
0.2
0
World
Automotive
China
Electronics
United States
Metal
Japan
South Korea
Germany
Plastics, Chemicals
Food, Beverage
All Others
35
• The current robot technology is
particular suitable for automotive
and electronics.
Supply factor:
technology
• Implication: China will be more
important
o the largest producer of
automobile units since 2008
o over 70% of the world’s
computers and electronics are
made in China
36
Demand factor: labor force declining
Declining Growth in Population Aged 15-64
37
Demand factor: government policies
• The government has
aggressively promoted the
usage and production of
industrial robots in recent
years. In 2015, further
bolstered by “Made in
China 2025”
o Adoption: 150 units per
10K workers by 2020,
tripling the 2015 level
o
100K industrial robots
annually produced by
domestic technology
o annual sales of RMB 30
billion for service robots
o developing 3 to 5 worldleading robot companies
and 8 to 10 supporting
ind. clusters
38
Robot production
● Growth of firms
o In 2005, 221 registered robotics firms
o By the end of 2015: 6,478. # firms doubled each year during 2013-2015.
● Growth of production
o In 2012, 5,800 robots were produced in China
o By 2017, the number had risen more than 20-fold to 131,000; 29% made
by domestic (non-foreign) firms
● Innovation
○ Patents with “robotics” in the title: 54 in 2000; 319 in 2010; 1,145 in 2015
● Subsidies: 40% the net profits of the four publicly listed robotics firms -SIASUN, Estun, Topstar Tech and Step Electric Corporation – derived from
government subsidies
39
Automated machines (not robots)
40
A welding
robot in a
car factory
near
Wuhan
41
A rice factory
Crab machine
Robot exhibit in Guangzhou
44
goverment policy
15% of robot adopters get government subsidies.
beta (se) =-0.042 (0.025)
beta=0.024(0.018)
45
Turnover is another important labor cost.
voluntary worker turnover
non-voluntary turnover
46
The technology optimism in China
• The threat of job replacement is rarely mentioned in the govt documents
• The govt emphasizes robot adoption as a way to deal with labor shortage
Why?
• Advances in science and technology are believed by many to be essential for
China’s rise as a world power
• Since the Opium War in the 1840s, China has endured numerous foreign
invasions, which many have attributed to the inferiority of technology in
China.
“One important reason why China fell into backwardness and took beatings in
the modern era is that the previous industrial revolutions slipped through our
fingers, leaving us with weak technology and a weak state. To realize the great
rejuvenation of the Chinese nationhood that is the Chinese Dream, we must
make genuine use of science and technology, this revolutionary force and lever
of power in the highest sense.”
45
Takeaways
Robot adoptions are
determined by both supply
and demand factors
• Supply: current technology is
used in mainly auto and
electronic industries, which
China dominate
• Demand: labor shortage and
rising wages
• Demand: government
subsidies
Different from other countries
• Chinese government and
people worry less about job
replacement by robots at the
moment
• (but, this may change…)
46
0
