Effective Surplus Labor:
Concept and Measures
Prof. Jingbei HU
Chair Professor of Economics
Tongji University, Shanghai, PR China
April 12, 2005 in University of Michigan
• Contents
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1. Introduction: where does the problem come
from?
2. Traditional concepts and measures of
agricultural surplus labor
3. Failures in traditional measures of agricultural
surplus labor
4. Concept of effective surplus labor
5. Measures of effective surplus labor
1. Introduction: where does the
problem come from?
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It is well known that there is a heavy
surplus labor in agriculture in China
But the shortage in migrated labor forces
(mingong huang 民工荒) evolved in
many industrial areas in Chinas since
last year.
There is a co-existence of both, a large
surplus and a large shortage in labor
supply in China
• Examples
• In Shenzhen in South China, 300 000 migrated
labor forces are short
• In Dongguang in South China, 230 000 migrated
labor forces short
• In different newspapers something as “shortage
in migrated labor forces” stands in the title pages.
It is reported that China confronts shortage of
this kind for the first time since 20 years of the
Reform.
• And wages for migrated labor forces began to
rise since last year.
• To solve the obvious contradictions between
theory and practice, there are two possible
explanations to think about:
• 1) The shortage in migrated labor forces
happens only in the short run. It happens
because
– The Chinese government raised prices for agricultural
products and cut agricultural taxes from 2003 on.
These measures make some agricultural productions
profitable and many peasants are reluctant to leave
for city jobs.
– China got too quick industrial growth in these two
years and many surplus labor forces are not ready
enough for migration
• 2) It is of long-run nature because the socalled surplus labor in China is almost
eliminated.
• But there are in China no scholars who are
favorable to this explanation.
• In this paper I want to put forward a third
explanation with a new concept of effective
surplus labor and argue that a group of effective
surplus labor can be identified from the whole
pool of agricultural (surplus) labor forces.
• This group affects the supply-demand-relations
of migrated labor markets effectively. In the case
of shortage in labor supply coming from this
group, the wages could rise, even if there is still
much surplus labor in the agricultural sector.
• Literature:
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In Chinese: only one found (Zhang, 2005).
He calculated the industrial and agricultural
demands in the year 2003 for agricultural labor
forces of ages up to 24 years old and came to
the conclusion, that this group of labor forces
would be short in comparison to demands, while
there is a large pool of surplus labor forces of
ages from 25 on (more than 70 millions).
• This paper will make use of Zhang’s statistical
studies and tries to understand the problem in
general.
2. The traditional concepts and measures of
agricultural surplus labor
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-- Traditional concepts
1) Economic definitions:
The standard concept of surplus labor resulted
from Lewis’ seminar paper [1954]. According to
him, a peasant would be surplus if his marginal
productivity in agriculture (MPA) is lower than
the subsistence wage (E). A peasant should
get this wage at least for his basic demands of
life if he comes to take a job. That means
If MPA < E, then a laborer is surplus
• Lewis believes that there is actually
unlimited surplus labor in many developing
countries around the world. These labor
forces search jobs in the industrial sectors
and lead industrial wages down to rural
subsistence level with a gap related to the
differences of life costs in urban and rural
areas.
• 2) Technical definitions
• Many definitions are put forth from more
technical aspects.
– A part of peasants would be surplus if the
peasants produce more agricultural products
than demanded (Jorgenson, 1961). It should
be noted that the highest demands for
agricultural products are fixed in Jorgenson’s
model.
surplus = peasants – (Y/m)
(Y:highest agr. product,
m: production coefficient of labor)
- A part of peasants would be surplus, if
the cultivated land per agricultural labor
force decreases in the long run [Guo,
1995], or the natural resources per
agricultural labor force decreases down
to a certain level [Zhang,1995].
Here the man-land-relations are stressed.
- A part of peasants would be surplus if
their annual working hours are smaller
than in urban industries [He,1999]
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-- Traditional measures
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According to above definitions there are two
kinds of measures of surplus labor.
1) Calculating marginal productivity of labor in
agriculture. Researchers try to find the number
of agricultural labor forces corresponding to
certain parameters, e.g, MPA=0, =E or = a
certain quantity. The total agricultural labor
force minus this number tells the surplus figure.
• 2) Calculating the number of agricultural
labor forces needed to produce certain
quantities of agricultural products or to
combine adequately with other inputs
available to agriculture. The difference
between this number and total agricultural
labor forces will be the surplus.
• Three tables about quantities of Chinese
agricultural surplus labor:
• See word-files
• The above three tables show very different
estimations on Chinese agricultural
surplus labor.
• But all these estimations do not imply that
China could see shortage in migrating
labor forces during the first decade of the
21st century.
• How the problem has to be explained?
3. Failures in traditional measures of
agricultural surplus labor
• All the estimations shown above are
subject to measuring deficits.
• They are based on the common principle:
• Rural surplus labor
• = total rural labor force
• － “adequate” quantity of agricultural
labor
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forces, calculated with different
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estimation methods
• This principle has at least two premises:
• 1) Homogeneity of agricultural labor force.
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• 2) Surplus could be defined within the
agricultural sector.
• Regarding the homogeneity assumption
• It may lead to the image that all surplus
labor forces go into industrial labor
markets simultaneously.
• It means e.g. if there are 100 million
surplus labor forces in Chinese agriculture,
they would go to urban labor markets at
the same time and cause unlimited labor
supply of Lewis’ type.
• If the migration process of agricultural
labor is not seen as only one point in the
economic history or if the analysis of this
process does not stay at the macro level,
the homogeneity assumption is too strong
to grasp the process and structure of the
peasant migration.
• We may need a new concept to structure
the process at the micro level.
• Regarding the agricultural Assumption
• The concept of agricultural surplus labor should not be
understood only within the agricultural sector.
• A peasant is not necessarily surplus, if he is exceeding
the agricultural labor demands to given technologies or
exceeding the quantity of labor forces corresponding to
some productivity indexes.
• If the labor surplus is defined with the co-existence of
industrial sectors, we can say a peasant is not surplus if
he, to any reasonable industrial wages, does not want to
go to work in industrial sectors, although he is surplus
within the agriculture.
• Labor surplus appears only if there is a
reference: the industrial sectors searching for
profits. For capitalist industries a labor force is
surplus, if his marginal productivity does not, at
least, reach his wage demand.
• In the traditional agricultural society without
capitalist industries there would not be surplus
labor even if the quantity of agricultural labor
may be very big. In China’s agriculture, e.g.,
peasants have the right for working with land.
They do not produce for profits and the marginal
concepts are not important for their production.
4. Concept of effective surplus
labor (ESL)
• ESL: Agricultural surplus labor forces who, to
certain gaps of industrial wages over agricultural
ones, are willing and able to migrate for
industrial employment, but cannot get employed.
• Similarly, ESL can be understood as agricultural
surplus labor which clearly affects to a certain
wage level supply-demand-relations of industrial
labor market.
• Examples:
• To the same wage gap
• a 50-years-old peasant (A) is surplus in
agriculture, but may not migrate to search a job
in industry;
• a 20-years-old peasant (B) may very probably
search a job in industry.
• Observed from the industrial labor market, both
peasants do not have the same meanings for
the market: Person A may not be an effective
surplus labor, while B is.
• The personal difference between A and B is age.
It is understandable that peasants of different
ages have different migration costs and
therefore different expectations to incomes they
could earn in industry if they migrate.
• This reasoning leads to the considerations that
the age may be a superficial explanation. The
economic calculation plays decisively. Young
people have to bear lower migration costs and
are ready to get lower industrial wages than the
adults.
• There is a large amount of literature concerning
developing countries which divide peasants in groups
according to age, gender, education, region with
distance to major industrial areas, etc. and which studies
peasant migration behaviors with these characteristics.
• But beyond all these characteristics the economic
calculation is hidden. So the ESL-concept tries to
generalize these divisions and gives a description of
general structures and processes of peasant migration in
the developing countries.
• The concept emphasizes peasants who are ready to
migrate for getting industrial jobs to prevailing wages.
• In the meantime, it implies that not the whole mass of
peasants, but only a part of peasants have clear effects
on industrial labor supply at a certain point of time.
Importance of wages
for the ESL-definition
• With increases of industrial wages
comparative to agricultural ones, the
probability that the 50-year-old would
emigrate to work in industry may become
larger.
• Therefore:
• Changes in wage could result in more or
less effective surplus labor.
• In this meaning we can get a function:
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ESL = f(w)
f’ > 0
Fig. 1, see word-file
following contents see word-file
5. Measures of ESL
• From the definition of ESL, the logic of its
measure could be thought out as follows
• -- Industrial demands for migrated workers
• -- agricultural demands for similarly qualified
peasants
• -- total number of peasants of this group
• -- peasants of this group who are ready to
migrate
• -- ESL
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If ESL >> industrial demands
Then wages remain constant
If ESL < industrial demands
Then wages rise
If ESL < industrial + agricultural demands
Then wages may rise
• First: Industrial demand for migrated labor forces
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According to an investigation in the city of
Dongguang, Province Guangdong in South
China, where some 5 million migrated labor
forces work in the industry and where the lack of
further supply of these labor forces is obvious,
87% of demanded migrated labor force is
agricultural labor forces with ages from 17 to 25.
• That is: unmarried young agricultural labor is
particularly needed for industrial production.
• The measure of this demand, as in Zhang
(2005), could be made as follows:
• In 2003, there are 169.50 million peasants
working in non-agricultural sectors. Some
46.5% of them are young under the age of
25. It means that in China young peasants
working in non-agricultural activities may
amount to some 78.87 million.
• Second: Agricultural demand for young
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peasants
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According to China’s census of the year 2000
and with some adjustments, young agricultural
labor forces under the age of 25 could amount to
19.3% of total agricultural labor forces. Assumed
that this ratio could be used to the year of 2003
and considered that in this year labor inputs for
China’s agriculture could be computed as
177.54 million, we may conclude that agricultural
demand for labor forces under the age of 25
would be 34.27 million (177.54×19.3％).
• The total demand for young peasants is:
• 113.14 million (78.87 + 34.27).
• Third: Availability of young peasants
• According to estimation by Zhang (2005),
21.7% of China’s total rural labor forces (489.71
million) are young under the age of 25. It implies
total availability of young peasants would be
106.26 mil. in 2003.
• Result:
• Demand for young peasants (113.14 million)
would be larger than their supply (106.26 million)
in the year of 2003. The difference might amount
to 6.87 million
• But in fact, the demand estimated is the
input of labor of the young group and
should not be larger than supply available.
• The problems may lie in the estimation of
labor input in agriculture in 2003. The rate
of inputs of young peasants to total
agricultural labor should be much lower
than that in 2000 with 19.3%. This rate in
2003 should not be higher than 15%.
• According to figures from NBSC officer’s
papers (2004a,2004b) and Zhang (2005),
• Rural labor forces: 489.71 mil.
• Migrated: 169.50 mil.
• Rate: 34.6%
• Rural young labor forces: 106.26 mil.
• Migrated: 78.87 mil.
• Rate: 74.2%
• The figure would point out that ¾ of young peasants
have got industrial jobs.
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In consideration of
-- agricultural demands
-- cases young peasants have to remain at home
-- particularly the desire of industrial enterprises
• it could be said that young peasants as ESL
would be almost absorbed out now.
• The wages to attract ESL of young peasants could not
attract new peasant groups as new ESL. They would
have to rise.
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Questions:
Who may the next ESL be?
How big may the next ESL be?
How big may possibilities of substitution
between different labor groups for Chinese
industry?
• Is the time of low-wages for Chinese
industry over?
• ……
•THANK YOU!
• Email: jbeihu@mail.tongji.edu.cn
• Homepage: www.hujingbei.net