China is abundant in labor supply. Among the 1.3 billion people in mainland China in 2003, 760.75 million were economically active, representing the largest labor force in the world. Moreover, the population of working age is growing at the fastest rate during the past decade, increasing by 13.6 million annually on average. This continued growth is mainly caused by the large birth cohorts born two decades ago, and is resulting in low dependency ratios for both the young and the elderly. The proportion of working age population (aged 16–59) total population has remained at a level around 68 percent over the past decade. The abundant labor supply is one of the major driving forces behind China’s rapid economic growth over the years. By mobilizing an almost unlimited and cheap labor supply, China has become the factory of the world. China is harvesting the demographic bonus created by favorable age structure caused by demographic transition.
However, this abundance may change soon as the opportunity window is gradually closing. The annual rate of increase of the working age population in China for 2000–2015 is projected to be only 0.9 percent, much lower than the world average rate of 1.4 percent. It is also projected that while the total Chinese population may peak in 2030, the working age population would peak much earlier, around 2020. The total labor force in China may show a negative growt thereafter as the large cohort of baby boomers who were born in the 1950s will gradually retire in the next decade, while the new comers will not be able to replace them in the same number. Labor shortage has already been widely reported, particularly in the Guangdong province in 2005. The very low wage is one of the causes of the phenomenon. However, the gradual decline in the overall labor supply is another potential cause for the shortage. The future economic growth in China will therefore rely more on the improvement in labor quality rather than on the increase in quantity.
In 2003, 744.32 million Chinese were formally engaged in economic activities. The employees in urban areas accounted for 34.4 percent of the total and those in rural accounting for the remaining 65.6 percent. China’s urban labor force used to enjoy full employment but with low salaries. For a long time, jobs were assigned by the State to individuals, and neither workers nor the enterprises had any say in the matter. This “Iron rice bowl” employment system ended in
the early 1980s, when contractual employment was introduced nationwide. The 1990s witnessed a further economic restructuring involving both changes in ownership and upgrading of the industrial structure. The transformation of the centrally planned economy towards a market oriented one has made the labor force increasingly mobile, and people have been given much more freedom to choose jobs. As a result of these changes, urban unemployment has emerged, and a relatively large proportion of “excess” workers has been laid off or transferred to other economic activities. It was reported that during the five years of 1998–2003, the total number of laid-off workers from state-owned enterprises had been 28.18 million, of whom over 17 million were reemployed. The rapidly expanding sector of foreign joint ventures and private businesses has been able to absorb millions from the labor force. Employment in China has therefore become quite diversified, and this diversity is increasing continuously. It is projected by the Chinese authorities that in the next five-year period, an additional 50 million labor force will enter China’s urban labor market, though the urban economy can absorb only 40 million of them. In other words, the urban unemployment is expected to increase by about 10 million by the year 2010. Hence, China will continue to face urban unemployment in the future.
It is estimated that there are more than 200 million rural surplus laborers who need to be transferred from the agricultural sector. These laborers have been, for a long time, in an underemployment situation and kept to their shrinking land, or partly absorbed by rural industries. As the economic reforms removed many restrictions on geographic mobility, the rural surplus labor force has become visible in the form of large-scale migration driven mainly by economic opportunities available in the places of in-migration. A huge number of migrant workers have restructured the urban labor market.
Migrant laborers now account for 30 percent of China’s rural labor force, and they have now become an indispensable part of the urban labor force. It is commonly accepted that the so-called floating population currently numbers about 140 million compared to 70 million in 1993, suggesting that more than 10 percent of the Chinese population are on the move. Another 130 million rural laborers work in the rural industrial sector represented by Town-Village Enterprises (TVEs).
Consequently, the number of rural laborers who are engaged in non-agriculture economic activities has already exceeded the traditional urban labor force. Migrant workers are often blamed to be the competitors of urban jobs and to have made the urban unemployment problem more serious. However, many studies have shown that migrant workers are more likely to be supplement rather than compete with the local urban labor force. Migrant workers provide an almost unlimited and flexible supply of cheap labor, reducing labor cost in urban sector and easing the shortage of urban low-paid manual workers by usually taking up dirty, demanding, and dangerous jobs that urban workers are no longer willing to take. There is therefore now a segmentation of the urban labor market, with migrant workers concentrating on certain occupations and little labor mobility across the segmented parts. Migration helps reduce labor cost in urban sector as their wages are commonly low and their employers have no obligation to provide for them social security contributions, which in the case of Shanghai, is equivalent to 46 percent of the total wage.
As for the sectoral structure of employment, more people now work in the tertiary industry than ever before, while the number of workers in primary industry declines. In 2003, 218.09 million employees, accounting for 29.3 percent of China’s total labor force, worked in the tertiary industry, compared to 18.5 percent in 1990. On the other hand, the proportion of those employed in primary industry dropped from 60.1 percent to 49.1 percent with the number of laborers standing at 365.46 million in 2003.
Viewed from another angle, informal employment has gradually become a major form of employment in China, and it is now treated as one of the very important ways to cope with the urban unemployment problem. The ILO term“informal employment” was first introduced to China in the early 1990s, and was used by researchers before being accepted by the government. Informal employment in China covers various employment forms that differ from the dominant employment form based on the industrialized factory system in such respects
as labor hours, the form of reward and income, the working conditions, social security and the fringe benefits, and labor relations. At present, terms such as “informal sector”, “informal employment” and “informal worker” are often used with some confusion. There is no clear-cut definition of “informality”, and the term “informal employment” was not even mentioned in the recent government White Paper entitled “China’s Employment Situation and Policies” issued by the Information Office of the State Council of China on April 26, 2004. Instead, Chinese officials often use the term “flexible employment.” In spite of this confusion, there is no doubt that the importance of informal employment in China’s economy has increased significantly. It is estimated that the number of laborers engaged in informal economic activities in China’s urban sector ranges from 108 to 125 million. The figure would be much higher if all migrant workers are included in the estimation.
Despite rapid expansion of China’s high education system over the past decade, there are only 67.64 million persons having a college level education. In other words, there are only 5,175 college graduates in every one million population. This suggests that China has to put in much more effort in raising the education level of the population. China therefore also needs to prepare more earnestly for the phase when enhancing the quality of labor will be the only way to enhance
the labor input.
