China's Labor Transition and the Future of China's Rural Wages and Employment

• Author: Jikun Huang,Qiang Li,Chengfang Liu,Renfu Luo
• Published date: 01 May 2013
• Date: 01 May 2013
• DOI: http://doi.org/10.1111/j.1749-124X.2013.12019.x

4China & World Economy / 4–24, Vol. 21, No. 3, 2013

©2013 The Authors

China & World Economy ©2013 Institute of World Economics and Politics, Chinese Academy of Social Sciences

China’s Labor Transition and the Future of China’s

Rural Wages and Employment

Qiang Li,a Jikun Huang,b Renfu Luo,b, * Chengfang Liub

Abstract

This paper contributes to the assessment of China’s rural labor markets. According to our

data, the increase in off-farm employment that China experienced during the 1980s and

1990s continued during the 2000s. Our analysis shows that migration has become the most

prevalent off-farm activity, although the destination of migrants is shifting from outside of

one’s province to destinations closer to home. The present paper finds that large shares of

male and female individuals, especially those under 40 years, are working off the farm.

These findings represent an important contribution to the labor economics field. First, the

results of the present paper reveal that the labor transition from the agricultural sector to

the non-agricultural sector for key segments of China’s rural labor force is nearly complete.

Second, although a large share of China’s rural labor force work in agriculture, most of

these workers are older men and women (and likely would not be willing to take low-wage,

labor-intensive jobs). Third, the rising unskilled wage rate in China is partially a result of

the tightening of the labor force in the young age cohorts. Finally, due to factors associated

with the one child policy and other demographic transition forces, successive age cohorts

will continue to fall in absolute number in the coming decade. Assuming China’s growth

continues, we expect to see further wage increases since it will take higher wages to coax

more workers to work off the farm.

Key words: China, labor force participation, rural wages

JEL codes: J2, O1, P2

aBeijing Forestry University, Beijing, China.

bCenter for Chinese Agricultural Policy, Institute of Geographical Sciences and Natural Resources Research,

Chinese Academy of Sciences, Beijing, China.

*Corresponding author: Email: luorf.ccap@igsnrr.ac.cn.

The authors are grateful for funding support from the National Natural Science Foundation of China

(71110107028, 71033003 and 70803005), the Chinese Academy of Sciences (KZZD-EW-06-02), and

the Institute of Geographic Sciences and Natural Resources Research, Chinese Academy of Sciences

(2011RC102 and 2012ZD008).

5

China’s Rural Labor Transition

©2013 The Authors

China & World Economy ©2013 Institute of World Economics and Politics, Chinese Academy of Social Sciences

I. Introduction

Since the economic and political reforms began in China in the late 1970s, the nation has

experienced rapid economic growth. The expansion of the rural economy has driven much

of this growth (Putterman, 1992; Perkins, 1994). Rural labor markets have changed

dramatically over the past 20 years and their emergence has contributed to the success of

the rural economy (Solinger, 1999; West and Zhao, 2000; World Bank, 2001). Many observers

of China agree that the success of rural labor markets in helping to raise incomes and

productivity has been instrumental in the rise in rural welfare (Parish et al., 1995; Rozelle,

1996).

However, the growth of rural labor markets is important beyond its role in providing

rural residents with a means to raise income (Stark, 1976; Todaro, 1976). For China to

modernize, the nation must rely on labor markets to facilitate the shift from a largely rural

population to an urban population. Without well-functioning labor markets, it will be difficult

for the primary mode of production to be shifted from agriculture to industry/service.

Hence, the question of whether or not rural labor markets have emerged in a way that will

allow them to facilitate more effectively the transformation of China’s economy is important

beyond the fact that off-farm jobs contribute to rural income.

Although many researchers have contributed to the debate, scholars do not agree on

the role that rural labor markets have played in contributing to China’s economic growth.

Some researchers believe that significant barriers still exist in China’s economy, and that

the absence of well-functioning rural labor markets has hindered growth (e.g. Meng, 1990,

1996; Benjamin and Brandt, 1997; Liu et al., 1998; Mallee, 2000). In contrast, others believe

that rural labor markets are spearheading China’s drive towards modernization (Cook, 1999;

Lohmar, 1999; Maurer-Fazio, 1999; Rozelle et al., 1999; Knight and Song, 2001; de Brauw

and Rozelle, 2008). The disagreement may exist, to some extent, because most previous

analyses consider only part of the labor market, focus on only part of the country or are

limited to a subset of questions about labor market performance. Perhaps due to the

magnitude of the questions, the bits and pieces that are found in the published literature

seem inconsistent or contradictory.

One of the reasons that we need to investigate how well China’s rural labor markets are

working is to help us understand another more immediate debate that is raging in China:

Why is the unskilled wage rate rising? On the one hand, there are scholars who say that

there are hundreds of millions of “surplus laborers” in rural China who would be ready and

able to enter the labor market if labor markets just worked better (Rawski and Meade, 1998;

Golley and Meng, 2011). According to this argument, if China could just get labor markets

functioning well, in the coming years, wages in China would not necessarily rise that much