Labor Market Dynamics and Structural Change: Evidence from China

• Author: Rui Mao,Jianwei Xu
• Published date: 01 July 2015
• DOI: http://doi.org/10.1111/cwe.12121
• Date: 01 July 2015

60 China & World Economy / 60–83, Vol. 23, No. 4, 2015

©2015 Institute of World Economics and Politics, Chinese Academy of Social Sciences

Labor Market Dynamics and Structural Change:

Evidence from China

Rui Mao, Jianwei Xu*

Abstract

Structural change theories usually assume agents are homogeneous. However, because

of demand-side or supply-side heterogeneities, the probability of switching among

sectors differs across people. This paper reveals these differences through restoring a

long-period, individual-level panel dataset from China’s Urban Household Survey for

1986–2009. We find that both for people who started working for the first time and

those who switched jobs, the sector choice depends on personal characteristics. In

particular, women and people with higher educational attainment or a previous white-

collar job are more likely to join the tertiary sector and less likely to join the primary

sector. These effects are substantial even if the macroeconomic variables used in

conventional structural change theories are controlled. They are also robust in various

periods and at more detailed industry levels. Our research suggests that it is important

to pay greater attention to the labor composition when making policy related to economic

structural change.

Key words: labor market dynamics, personal characteristics, sectoral switch, structural

change

JEL codes: J16, J21, J24, L16, O11

I. Introduction

Intersectoral labor movements give rise to structural change which can be typically

characterized by Kuznets facts: the employment share of the primary sector declines,

that of the tertiary sector increases and that of the secondary sector follows a hump-

*Rui Mao, Assistant Professor, School of Management, Zhejiang University, Hangzhou, China. Email: rmao@zju.

edu.cn; Jianwei Xu (corresponding author), Associate Professor, School of Finance, Beijing Normal University,

Beijing, China. Email: jianweixu@gmail.com. This research is supported by the National Natural Science Foundation

(Grant No. 71403237), the Project of Humanities and Social Science of the Ministry of Education in

China (Grant No. 14YJC790089), the Zhejiang Provincial Natural Science Foundation of China (Grant

No. LQ14G030008), the Beijing Social Science Foundation (Grant No. 14JGC100), and the Scientific

Research Fund of Zhejiang Provincial Education Department (No. Y201430552). Rui Mao also thanks

the Collaborative Innovation Center for Rural Reform and Development for financial support.

61

Labor Market Dynamics and Structural Change

©2015 Institute of World Economics and Politics, Chinese Academy of Social Sciences

shaped trajectory (Clark, 1940; Kuznets, 1957, 1966; Chenery, 1960). However, because

of demand-side or supply-side heterogeneities, the probability of intersectoral switches

differs across people. Therefore, not only the employment share of each sector changes,

but the labor composition within each sector changes. This heterogeneous employment

reallocation across sectors tends to be overlooked in the literature.

We intend to fill this gap by uncovering individual-level heterogeneities underlying

the process of the structural change of China’s economic sectors. More specifically, we

want to investigate whether the intersectoral mobility rates differ for people with different

characteristics and, if so, what characteristics are the key determinants. We will also

explore whether and how macro-variables of structural change on the demand side (the

income level) and those on the supply side (the sectoral total factor productivity [TFP]

growth rates) may exert additional impacts on the relationships among personal

characteristics and sectoral switch decisions. This study can help the government to make

structural change policies in coordination with the characteristics of the labor force.

We construct a panel dataset using the Urban Household Surveys (UHS) conducted

by the National Bureau of Statistics (NBS) of China from 1986 to 2009, which allows us to

track people’s working sectors, and examine how personal characteristics affect sectoral

choices. Our results reveal that for people who have already been working, the odds ratio

of choosing the primary sector over the secondary sector decreases for women and for

people with a white-collar job; that of choosing the tertiary sector over the secondary

sector increases for women and for people with a white-collar job and higher educational

attainment, and exhibits a U-shaped relationship with work experience. For people seeking

their first job, the odds ratio of joining the tertiary sector versus the secondary sector

increases for women and for people with high educational attainment. We also split the

sample into two periods to examine the differential effects over time, and break sectors

into more detailed industries for robustness checks.

Our study focuses on China in particular because its economic structure has experienced

dramatic changes since the mid-20th century. The employment share of China ’s primary

sector decreased from 83.5 percent in 1952 to 34.8 percent in 2012, whereas those of the

secondary and tertiary sectors, respectively, increased from 7.4 and 9.1 percent to 29.5 and

35.7 percent.1 Meanwhile, unlike developed and other emerging markets, the share of

China’s secondary sector in GDP has continued to increase. Therefore, our study is

distinguished from other relevant studies that focus on mature economies. Finally, China ’s

marketization reforms in the 1990s also make it an interesting case to examine how

1These figures come from the website of the National Bureau of Statistics of China, available from: http://www.

stats.gov.cn/english/.