In the past, the most important demographic determinant of employment in
China was the rate of population increase; today, it is the age structure of China’s
total population. Recent experience suggests that China is capable of finding pro-
ductive employment for new entrants into the labor force. By far the greatest
employment challenge faced by the government is finding productive employ-
ment for unemployed members of the existing labor force. These include two main
categories: unemployed urban workers who have been laid off from state-owned
enterprises and failed to find new jobs; and – by far the more important compo-
nent – the massive overhang of surplus farm laborers in the countryside. Trying
to accommodate the job aspirations of the urban and rural unemployed and
under-employed is a challenge that will tax the ingenuity of the government for
at least two more decades. Not until around 2030 will the combined impact of
past low fertility rates and the aging process at last begin to erode China’s super-
abundance of labor.
The macroeconomic environment will be a major determinant of the Chinese
government’s ability to fulfill its employment creation goals during the com-
ing decades. At the same time – not least, against the background of increasing
rural social instability in recent years –the employment impact, both direct and
indirect, of the government’s macroeconomic policies will necessarily assume
a high priority. Meanwhile, the shift, since 2004, toward a strategy of develop-
ment sustainability carries potentially very real implications for employment.
Fulfillment of the new strategy’s goals may, after all, necessitate a sacrifice in
terms of economic growth, since a one percent reduction in GDP growth will – to
a greater or less extent, depending on the sector(s) most affected and the rel-
evant value(s) of employment elasticity(ies) – have a significant knock-on effect
on employment.
China’s development trajectory since the mid-1980s has embodied a widen-
ing economic gap and increasing social polarization between different regions
of China. The benefits – including employment gains – of post-1978 economic
growth have accrued disproportionately to coastal regions. One of the most dif-
ficult employment challenges facing the Chinese government is to find ways of
promoting more rapid growth and changes in the structure of the economy that
will enhance job creation in interior regions, especially in the far west.
Although recent large-scale lay-offs from state-owned enterprises have exacer-
bated unemployment in Chinese cities, to argue that excess labor supply alone is
the main cause of urban unemployment is too simple. Important too has been
the institutional segmentation of urban labor markets and the maintenance of
institutionally determined high urban wage rates. Here is one area in which the
existence of western-style trades unions might exacerbate employment condi-
tions through demands for restrictions on in-migration of cheap rural labor.
One of the important messages of this chapter is that policy-makers need to take
account of potential urban-rural synergies, and devise policies that will facilitate
competition between urban and rural enterprises, without the imposition of such
restrictions.
In the countryside, the rapid expansion of rural non-agricultural activities –
most notably, the development of rural industrial enterprises – has made a huge
contribution to easing labor pressures associated with the existence of massive
under-employment. Small-scale enterprises have proven themselves to be a low-
cost, flexible instrument of labor absorption. Another message of this chapter is,
however, that although the employment potential of the further development
of such enterprises has not been exhausted, their further expansion – especially
in poorer interior regions of the country – will be constrained by prevailing low
levels of per capita income and the absence of developed market networks. At the
same time rural industrialization is not the sole manifestation of non-agricultural
economic activities in the countryside. Both construction and the service sector
are also important destinations for surplus rural laborers, accounting for about
one-third of all rural enterprise employment, and well over 20 percent of rural
non-farm jobs. Such activities are, it is true, susceptible to the vagaries of cyc-
lical growth and may therefore offer less secure employment opportunities than
manufacturing employment. But their potential role is considerable, and it is no
coincidence that tertiary sector employment has been an increasingly important
focus of employment policy in recent years.
Migration should also be viewed as a positive instrument of employment pol-
icy, even if its consequences are not always uniformly beneficial. To regard the
role of rural-urban migration simply as a safety-valve that serves to ease employ-
ment pressures and relieve social strains in the countryside is too conservative
and passive. There is overwhelming evidence that those who leave their villages
in search of work tend to be young, better-educated, better skilled and more
resourceful. During their absence, migrants contribute much to their home com-
munities through the regular remittances which many of them make. If they
eventually return to the rural sector, the potential economic return for those
communities accruing from the fruits of their urban experience – measured not
only in terms of the savings they bring back, but also entrepreneurial and other
skills that they have learned – is also likely to be significant. In short, returnees
are a force for local economic growth – especially for rural, non-farm develop-
ment – the benefits of which promise to accrue not just to themselves and their
families, but also – through employment and income generation – to the wider
local community. Facilitating the developmental and welfare-enhancing role of
returnee migrants should be regarded as a core objective of job-creation and skill-
enhancement policies in rural China.
The forces bearing on China’s rural development are complex and, in some
respects, mutually antagonistic. Nobody can doubt that the growth and welfare
record of post-1978 rural reforms is a remarkable one. But it would be foolish to
underestimate, let alone ignore, the problems generated by those reforms. This
essay has tried to highlight the profound employment consequences of rural
reforms, and to suggest some of the ways in which they can be addressed. If the
underlying issues are complex, the ultimate message is simple. It is that the failure
to meet the rural employment challenge will pose a serious threat to the sustain-
ability of China’s social and economic development.
