Shock and Recovery in China`s Labour Market: Flexibility in the

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Albert Park, University of Oxford, CEPR, and IZA
Fang Cai and Yang Du, Chinese Academy of Social Sciences
John Giles, World Bank and IZA

Document and interpret what happened to
workers in China since the crisis
 Official data
 Firm surveys (PBC-CASS enterprise survey 2009)
 Household surveys (China Urban Labor Survey 2010)

Discuss key employment challenges moving
forward
 Labor market shortage?
 Enforcement of labor regulations
 Labor market informality





Rising real wages for migrants since 2005 (reaching
double digit increases)
Steady increases in rural-urban migration (145
million individual migrants in 2009)
Rapid informalization of the urban labor market (by
2005, >50% of urban workers were employed
informally)
China implemented a landmark Labor Contract Law
starting on January 1, 2008
Growth slowdown started in early 2008, before the
crisis
100.0
90.0
80.0
70.0
60.0
Public
50.0
Non-public
40.0
Self-employed
30.0
Unregistered
20.0
10.0
0.0
By keeping workers off the books, employers can
avoid payroll taxes for social insurance programs
(equal to 27% (18%) of wages for local (migrant)
workers).
 Young workers may prefer cash wages to social
insurance coverage, esp. when benefits are not
portable
 Rise of the private sector (harder to monitor and
regulate)
 Massive inflow of migrants (less concern about
protections for migrants)


Labor Contracts
 After 2 fixed-term contracts, or 10 years of
employment, contract must be open-ended
 Limits on probationary period (1-3 months depending
on contract length)
 Regulations on temporary work agencies (labor
service companies

Severance conditions
 30-day written notice
 Severance pay: one month’s pay for each year of
service (half month’s pay if less than 6 months),
double severance pay for unfair dismissal
20
04
.1
20
04
.2
20
04
.
20 3
04
.4
20
05
.1
20
05
.2
20
05
.
20 3
05
.4
20
06
.1
20
06
.
20 2
06
.3
20
06
.4
20
07
.1
20
07
.
20 2
07
.3
20
07
.4
20
08
.
20 1
08
.2
20
08
.3
20
08
.4
20
09
.
20 1
09
.2
20
09
.3
20
09
.4
18
Quarterly on Quarterly Grow th by Sector (%)
16
GDP
Primary
Secondary
T ertiary
14
12
10
8
6
4
2
0
Growth was slowing prior to the crisis and rebounded quickly


Massive economic stimulus package
Support to enterprises:




suspend tax payments
social insurance contributions delayed and/or reduced
credit expansion
wage subsidies
Expansion of labor training programs
Expansion of safety net programs (esp. rural minimum
living standards subsidies)
 Expanded social insurance coverage (including
portable pension and unemployment insurance for
migrants)


housing
10%
recovery
construction
25%
rural
infrastructure
9%
innovations
and economic
restructuring
9%
emission
reduction and
environmental
protection
5%
key
infrastructure
38%
social
development
4%
Job vacancy rates fell but bounced back quickly
Up to 20 million migrant workers lost jobs
temporarily (MOA, NBS surveys)
 2/3 of those losing jobs reemployed by summer
2009 (Rozelle et al., 2009)
 Migrant employment in cities increased by 2.9%
from 2008 to 2009 (to 145 million) (NBS)
 By 2010, very low urban unemployment rates
but lower labor force participation (CULS)






Surveyed firms in 8 provinces: 4 coastal
provinces (Shandong, Jiangsu, Zhejiang, and
Guangdong), one northeast province (Jilin), one
central province (Hubei), one northwest
province (Shaanxi), and one southwest province
(Sichuan).
Representative sample of >2000 manufacturing
firms in 25 municipalities
Sampling frame: all firms who ever had credit
relationship with any financial institution
Key collaborator: People’s Bank of China
Research Department
All firms
Non-exporters
Exporters
By ownership:
State/collective
Private
Joint/Ltd/Other
Foreign
By size (#employees)
Smallest quartile
Second quartile
Third quartile
Largest quartile
Jun-08
3.03
3.27
2.76
Dec-08
-0.53
0.68
-1.92
Jun-09
2.87
3.20
2.48
-6.05
2.61
3.70
3.84
-0.83
0.99
0.65
-4.55
1.78
5.40
1.70
4.30
2.11
3.00
3.00
3.05
0.48
0.28
0.16
-0.72
3.41
3.20
4.16
2.63
Crisis hit exporters, foreign-invested firms, and larger firms the hardest.
All firms
Migrants
Local
Non-exporters Migrants
Local
Exporters
Migrants
Local
Jun-08
4.76
3.23
5.44
3.51
4.22
2.80
Dec-08
-0.88
-0.07
1.23
0.06
-2.74
-0.27
Jun-09
5.29
2.09
5.71
3.35
5.01
-0.01
All workers affected by the crisis, but migrants more adversely affected
than local workers, especially in exporting firms.
All firms
By ownership:
State/collective
Private
Joint/Ltd/Other
Foreign
Surplus
5.05
Appropriate
59.86
Deficit
35.09
35.15
4.55
2.55
1.65
53.26
57.33
69.90
45.36
11.59
38.12
27.55
52.99
Still very high labor demand, despite regulations and recent negative shocks.
State/collective sector still plagued by surplus labor.
In each of 6 cities, survey 700 local resident
households and 600 migrant households
 In 5 completed cities, surveyed 13,000 adults,
including 9000 local residents 5000 migrants
 3-stage PPS sampling of urban sub-districts,
neighborhoods, and households
 Detailed enumeration of all dwellings in each
neighborhood
 Surveys directed by CASS, working closely with
city Statistical Bureaus

Local workers
Sep, 2008
Mar, 2009
Feb, 2010
Migrant workers
Sep, 2008
Mar, 2009
Feb, 2010
Weekly Working
Hours
Monthly Earnings
(yuan)
Hourly Earnings
(yuan/hour)
43.50
43.69
44.88
2104
2319
2454
11.96
13.12
13.53
55.13
55.69
56.98
2290
2466
2591
10.81
11.61
11.94
1600
NBS
RCRE
PBC
1400
1221
1200
1140
1000
953
889
800
821
644
666
756
703
600
2001
2002
2003
2004
2005
2006
2007
2008
2009
NBS=National Bureau of Statistics
RCRE=Research Center for Rural Economy (Ministry of Agriculture)
PBC=People’s Bank of China
Manufacturing
Construction
Hotels and
catering
Wholesale and
retail trade
Transport
Other
2008
42.0
16.3
7.6
2009
39.1
17.3
7.8
7.0
7.8
5.6
21.5
5.9
22.1
Units: %. Source: Sheng Laiyun of NBS (2009)

The end of surplus labor?
Appeal of the New Socialist Countryside
Rising costs of living

Looking forward: labor demand and supply

Q: Could rising wages be good for China?


By period:
2007
Jan-Jun 2008
Jul-Dec 2008
Jan-Jun 2009
By size:
Smallest
2nd quartile
3rd quartile
Largest
Very strict
Strict
Not strict
21.57
22.46
23.47
24.61
71.12
72.61
72.33
71.34
7.31
4.93
4.19
4.04
18.32
25.02
22.01
26.40
73.21
70.38
73.66
70.27
8.47
4.60
4.33
3.33
Firms report strict enforcement, with no weakening during the crisis.
Smaller firms report less strict enforcement than larger firms.
Dependent variable (ordered probit):
0=very strict, 1=strict, 2=not strict
Reference categories:
food and beverage
state sector
Zhejiang
Size quartile 4 (smallest size)
2007
Findings: enforcement stricter for:
- capital producers
- state sector
- Sichuan, Jiangsu, Jilin (no strong
pattern)
- exporters
- large firms
- most recent period
Robust
Coef.
Std. Err. P>|z|
Sector consumer products
0.014
0.065
0.828
Sector raw materials
-0.023
0.062
0.709
Sector capital and equipment
-0.156
0.067
0.019
Sector other
-0.272
0.084
0.001
Ownership private
0.108
0.089
0.225
Ownership joint
0.059
0.086
0.491
Ownership foreign
0.230
0.096
0.016
Jiangsu
-0.254
0.049
0.000
Guangdong
-0.078
0.052
0.133
Shandong
-0.054
0.056
0.330
Jilin
-0.164
0.085
0.054
Hubei
0.096
0.103
0.350
Shaanxi
-0.050
0.074
0.505
Sichuan
-0.538
0.077
0.000
Exporter
-0.104
0.041
0.011
Size-quartile 3
-0.313
0.051
0.000
Size-quartile 2
-0.352
0.051
0.000
Size-quartile 1
-0.460
0.054
0.000
Jan-June 2008
-0.063
0.048
0.190
June-Dec 2008
-0.077
0.048
0.109
Jan-June 2009
-0.160
0.048
0.001
All firms
By ownership:
State/collective
Private
Joint/Ltd/Other
Foreign
By export status:
Non-exporter
Exporter
% yes
34.44
28.07
31.63
35.40
38.32
34.89
33.51
One third of firms report that new Labor
Law has influenced employment decisions.
Influence greatest for foreign firms, but
not much different for exporters and
non-exporters.
However, preliminary regression analysis
finds no relationship between degree of
enforcement and actual changes in
employment .
Notable reduction in informality of migrant employment
2001
2005
2010
Local
Migrants
Local
Migrants
Local
Migrants
13.4
85.7
30.7
22.1
85.2
54.7
25.8
24.7
53.3
40.1
Male
Female
13.7
13.1
85.7
85.8
27.5
35.0
82.7
88.4
24.3
27.8
52.0
54.9
16~29
30~39
40~49
50~59
60+
11.6
15.8
14.2
9.22
20.6
80.9
89.2
94.3
92.1
93.9
26.5
34.1
33.8
24.2
37.6
81.7
85.2
91.9
85.5
84.9
21.2
21.5
31.3
27.1
63.2
47.3
53.3
60.9
64.2
75.6
0~6
7~9
10~12
13+
41.4
19.4
12.1
5.0
92.7
87.8
78.4
61.0
68.0
42.5
30.4
18.0
86.8
89.3
83.3
43.5
50.6
44.7
27.9
11.9
78.1
61.4
50.0
23.4
All
Wage employees
By gender:
By age:
By education:
1. Fixed-term labor contract
2. Open-ended labor contract
3. Other contract (for specific
work, labor service company)
4. No labor contract
Local residents
Migrants
Male Female Total
Male Female Total
56.22
61.29 58.35 50.46
52.17 51.26
20.48
14.98 18.17
4.96
2.88 3.98
1.49
1.53
1.50
3.59
21.81
22.20
21.97
41.00
2.21
2.94
42.74 41.82
Incidence
(%)
Local workers
Formal Employment
Informal Employment
Family workers
Self-employment
Employee in informal sector
Employed informally in formal sector
Employer in informal sector
Migrant workers
Formal Employment
Informal Employment
Family workers
Self-employment
Employee in informal sector
Employed informally in formal sector
Employer in informal sector
100
71.59
28.41
1.24
7.00
5.48
13.99
0.71
100
42.18
57.82
4.57
26.07
10.80
14.25
2.12
Weekly
Working
Hours
44.88
42.36
51.26
49.52
60.83
48. 54
46.96
65.42
56.98
49.66
62.32
65.89
68.78
56.99
52.22
70.57
Monthly
Earnings
(yuan)
2454
2769
1659
1186
2124
1486
1452
3340
2591
3229
2127
1840
2277
1855
1912
3724
Hourly
Earnings
(yuan/hour)
13.53
15.66
8.14
7.02
8.99
7.67
7.77
12.51
11.94
16.36
8.72
7.21
8.57
8.95
8.95
14.96
1.Do you think that when you are hired your employer should set a labor
contract with you? (yes)
2.Do you think employers must pay you double wages for each month
you worked beyond the allotted time for completing a labor contract?
(yes)
3.If a worker violates the rules set by an employer can the employer
terminate the worker’s labor contract? (yes)
4.If you meet the required conditions and suggest an open-ended
contract, must your employer comply? (yes)
5.Within how long do you think the labor contract should be signed after
being hired? (one month)
6.For a one-year labor contract, what is the maximum probationary
period? (2 months)
Local
residents
Migrants
96.28
89.66
82.20
79.47
68.83
72.90
68.65
62.77
40.14
41.32
24.54
23.72
Workers are aware of right to a labor contract, but vary in their familiarity with
Specific provisions. Migrants and local residents have similar levels of awareness.
Pension
working
Unemployed
Out of LM
Unemployment Ins.
working
Unemployed
Out of LM
Health Insurance
working
Unemployed
Out of LM
2005
Local
Migrants
residents
65.5
6.1
74.5
6.0
49.1
5.6
67.2
9.2
18.9
1.9
31.8
2.1
15.4
0
4.5
0.28
54.4
4.2
62.7
4.0
28.6
0
56.3
8.1
2010
Local
Migrants
residents
73.0
19.4
77.0
20.0
37.7
4.11
78.7
20.2
26.2
5.75
47.2
6.58
8.25
0
7.80
1.18
74.7
47.4
76.8
46.9
43.0
37.0
77.9
33.8
Progress increasing coverage of migrants, and expanding health insurance coverage,
(especially to nonworking individuals)


Crisis had very short-term impacts on employment
Labor Law is being implemented
 Viewed as costly by enterprises
 Trend of increasing informality reversed

…but no strong evidence of adverse impacts on
employment
 Rising employment and wages
 Increasing prevalence of labor contracts and social
insurance coverage

Suggests that robust labor demand is enabling
regulatory reform
Labor Law may become increasingly constraining
over time
 Tradeoffs between labor regulation and expansion
of formal employment could emerge in future
economic slowdowns
 Increasing labor scarcity will require continued
investments to raise labor productivity and
enhanced mobility to exploit dynamic comparative
advantage

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