Six central features of the Chinese labour market: A literature survey

• DOI: http://doi.org/10.1111/ilr.12016
• Published date: 01 June 2017
• Date: 01 June 2017

International Labour Review, Vol. 156 (2017), No. 2

Copyright © The author 2017

Journal compilation © International Labour Organization 2017

* Associate Professor, School of Economics, Renmin University of China, Beijing. Email:

ys337@ruc.edu.cn. The author wishes to acknowledge the support of the National Natural Science

Foundation of China (Project 71403281) and the Institute for China’s Economic Reform and De-

velopment at the Renmin University of China as the Key Research Base of Humanities and Social

Sciences of the Ministry of Education (14JJD790033), and to express gratitude to the Collaborative

Innovation Center for the China Economy (“Understanding and Leading China’s New Normal”)

for its support and to Yajie Wang for excellent research assistance.

Responsibility for opinions expressed in signed articles rests solely with their authors, and

publication does not constitute an endorsement by the ILO.

Six central features of the Chinese

labour market: A literature survey

Yang SONG*

Abstract: In this comprehensive analytical overview, the author pays particular

attention to the changing structure of China’s employment towards more private-

sector jobs in urban areas; its rising wages and widening earnings inequality; the

persistence of its hukou system, causing labour market discrimination, an urban la-

bour shortage and a rural labour surplus; its more market-oriented wage structure,

albeit with segmentation between rm ownership types; its relatively low un-

employment; and the relatively weak role of its traditional labour market institu-

tions, including minimum wages and trade unions. The aim is to contribute to

the development of more suitable, China-specic theoretical models and sound

policy analysis.

The Chinese labour market has experienced dramatic changes since the

start of market-oriented economic reform in 1978. The rst reform oc-

curred in rural China in 1978 with the establishment of the Household Re-

sponsibility System, which gave farmers more exibility to manage their own

labour supply and allowed non-agricultural activities in rural areas. Another

dramatic change happened in the mid-1990s when the private sector was le-

gally recognized and encouraged. Until the 1990s, the Chinese Government

had control over nearly every aspect of the labour market, including employ-

ment and wages. Jobseekers were assigned employment through universities

or local governments. Most people worked in state-owned enterprises (SOEs)

and enjoyed lifetime employment with no risk of being red. Labour mobility

was almost non-existent. It was the Government, rather than the market, that

allocated individuals to jobs (Knight and Song, 1995; Meng, 200 0).

International Labour Review214

Since the mid-1990s, jobseekers have been free to choose their employ-

ment, and employers have had more exibility to make decisions on hiring

and ring (Dong and Xu, 2009). The Chinese labour market then started to

thrive, with employers making their hiring decisions to maximize prot and

workers making their labour supply decisions to maximize utility. Thus, in a

strictly economic sense, the Chinese labour market has only been in exist-

ence for about 20 years.

The past two decades also witnessed a steady urbanization process in

China, featuring an increasing ow of labour from rural areas to cities as

regulations on rural–urban migration were gradually relaxed, especially after

2000 (Yang and Zhou, 1999; Chan, 2010; Meng, 2012). The most recent re-

port from China’s National Bureau of Statistics (NBS) estimates that rural

migrant workers numbered 168.21 million in 2014.1 Box 1 summarizes the

main changes that the Chinese labour market has undergone over the past

few decades.

Although these sweeping structural changes are impressive, labour

market reform remains limited in comparison with other market reforms in

China. The main challenge lies in the political difculty of eliminating a set

of institutions and policies that privilege the welfare of some urban work-

ers by paying higher wages in SOEs. An important institution in this regard

is China’s household registration system (called hukou in Chinese), which

separates native urban residents from rural migrants in terms of both access

to public services and labour market opportunities. On account of such insti-

tutions, the current Chinese labour market has some special features. It dif-

fers from the classical textbook labour market in which different rms pay

the same wage to comparable workers, with the wage being determined by

supply and demand to clear the market. The current Chinese labour market

is a lot more complicated than that. For instance, different wages are paid

to seemingly equivalent workers in different sectors, and an urban labour

shortage coexists with a rural labour surplus.

The main contribution of this article is that it attempts a comprehensive

and detailed analysis of the central features of the current Chinese labour

market. A considerable number of previous studies have indeed touched

upon particular aspects of China’s labour market, but none of them has given

us a complete picture. For example, Li et al. (2012) and Yang and Gu (2010)

reviewed the evolution of wages in China, and concluded with a forecast of

the end of Chinese cheap labour. Meng (2012) focused on the labour mar-

ket conditions of rural migrants, including their wages and occupations. Zhao

(2005) tried to offer a more complete picture of the Chinese labour market,

but his focus was on the 1990s and his study fails to account for the numer-

ous changes that have occurred since then.

This article analyses the main features of the current Chinese labour

market from an economist’s point of view, based on a comprehensive review

1 See http://www.stats.gov.cn/tjsj/zxfb/20150 4/t20150429_7978 21.html.