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Too Many or too Few Workers: Another Look at the Chinese Employment Market

06/03/2015 17:03

By Valentin Schmid, Epoch Times | June 3, 2015Last Updated: June 3, 2015 10:52 am

Workers walk past a nuclear power plant in Qinshan, 90 miles southwest of Shanghai, China, on June 10, 2005. (AP Photo/Eugene Hoshiko)

Workers walk past a nuclear power plant in Qinshan, 90 miles southwest of Shanghai, China, on June 10, 2005. (AP Photo/Eugene Hoshiko)

Consensus sentiment towards the Chinese economy is hard to pin down. Just a few years ago it was along the lines of “China is invincible.” Recently, this invincibility has gotten some chinks in its armor.

For example, people have recently been observing that the Chinese labor force is shrinking and additional labor won’t add much to GDP growth. According to official figures, there is nothing to worry about though. The unemployment rate has been stable at 4.1 percent for the last three years.

source: tradingeconomics.com

However, Keyu Jin of the London School of Economics now says the Chinese economy is not creating enough jobs.

“Even amid double-digit GDP growth, employment grew at a measly 1.8% average annual rate from 1978 to 2004. Households, it seems, have largely missed out on the benefits of economic development in China,” Jin writes.

He says while the Chinese economy was growing, jobs were simply transferred from the inefficient sector to the more efficient private sector, thus generating growth but not employment. In addition, most growth was created in the capital intensive yet not so labor intensive manufacturing sector of the economy.

Another problem, according to Jin, was the focus of state resources (capital and political support) on public industry, while private firms create more jobs.

“With average employment growth of 10.4% per year, the formal private sector partly compensated for the SOE layoffs from 1995 to 2004. The informal sector grew even faster, at an annual rate of 24%, albeit from a low base,” he writes.

So if the Chinese want more jobs, they should focus on private companies and services, which is largely how the Western economics are structured.

On the one hand Kin is certainly right China needs more jobs. There are millions of so called ants and rats people living under horrible conditions in the big cities because they can’t find a proper job.

On the other hand, with the labor force shrinking, China just needs to become more efficient and boost its output per worker so that fewer workers produce more for everyone.

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