8/6/2019 Lecture 12 Emergence of Labor Markets_revised
1/45
0
10
20
30
40
50
60
70
80
90
10011
0
Age
10000 5000 0 5000 10000
Males Females
Age 20-25
in 2002
Age 26-30
in 2002
Population pyramid, 2000 Census
(0.095% sample)
8/6/2019 Lecture 12 Emergence of Labor Markets_revised
2/45
The Emergence of Labor
Markets: The Conduit of ChinasModernization or the Suppliers
of Its Sweatshops?
Lecture 12
8/6/2019 Lecture 12 Emergence of Labor Markets_revised
3/45
Purpose of Today
Understand the process of the role of the labor in the rural economyin the modernization of an economy [macro view point]
Look at nature of labor markets how well are they working?
Consider the policies that are needed to move rural developmentforward and eliminate inequality and poverty Rural education Hukou system
Are Chinas labor markets the suppliers of the nations sweatshops?Why would a family send their child to a sweatshop? [micro viewpoint]
8/6/2019 Lecture 12 Emergence of Labor Markets_revised
4/45
Role of Agriculture in Development
(Johnston and Mellor, AER, 1961) Provide Inexpensive Food
Provide Labor for Industry
Provide Export Earnings
Provide Other Commodities
Provide Income Maintain or Increase Rural Incomes
Poverty Alleviation
Engine of Growth of Productivity
8/6/2019 Lecture 12 Emergence of Labor Markets_revised
5/45
Strategy
Importance of migration as a driver of growth
Labor markets conduit of development winners use labor markets
Dealing with those left behind (preparing them toleave / taking care of those left behind): Role of trade policy (none after liberalization)
Role of agriculture vis--vis off farm employment (whydo we need a strong agriculture?)
Challenges of development: trade liberalization
8/6/2019 Lecture 12 Emergence of Labor Markets_revised
6/45
Labor Market in Rural China
Research showed that rural income growth in1990s was almost totallydependent on off-farmwork [Rozelle, 1996];
Major factor in poverty alleviation also found tobe labor markets in 1990s [Park et al., 2006]; Create link between poor areas and the rest of the
economy;
Rising rural incomes throughoutChina dependon employment off the farm plus newinvestments in housing and new businesses[Giles and deBrauw, 2006]
8/6/2019 Lecture 12 Emergence of Labor Markets_revised
7/45
More than just higher incomes...
Labor markets can also help create
necessary conditions for development:
Population moves from rural to urban areas
(as it has in everydeveloped country)
Shift from agriculture to industry
8/6/2019 Lecture 12 Emergence of Labor Markets_revised
8/45
Transformation Path
Percent
of Popn
in Ag.
Sector
Income per Capita
US and other OECD
nations
Ethiopia, Rwanda, etc.
8/6/2019 Lecture 12 Emergence of Labor Markets_revised
9/45
Transformation Path
Percent
of Popn
in Ag.
Sector
Income per Capita
China: with only about 30
percent of population in urban
areas if it is successful in
developing, it will necessarily
move along this rural-urban
transformation path
8/6/2019 Lecture 12 Emergence of Labor Markets_revised
10/45
Data
Collected in a nearly nationally representative
sample of households in late 2000
6 provinces - 1 in each of Chinas major zones
Hebei, Shaanxi, Liaoning, Zhejiang, Sichuan, Hubei
5 counties per province-- one randomly selected from
each income quintile
2 townships per county, 1 village randomly selected
within each
20 households randomly selected in each
8/6/2019 Lecture 12 Emergence of Labor Markets_revised
11/45
Employment History
In half the households, asked a 20 year
employment history of all adults and
children of the household head
Whether employed off-farm or not
If so
Location and whether lived at home
Self-employed or not Level of involvement in farming
8/6/2019 Lecture 12 Emergence of Labor Markets_revised
12/45
Overall Increase in Off-farm Work
0%
20%
40%
60%
80%
100%
1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Year
off-farm busy season part time farm only
In 2000: 45% of rural labor force have
jobs off the farm more than 80% of
households have at least 1 personworking off the farm
In 1980:only 4%
worked full
time off
the farm
>50%
2006
8/6/2019 Lecture 12 Emergence of Labor Markets_revised
13/45
Percent of Workforce Off-farm, by Age
Range
Age Range 1990 2000
16-20 23.7 75.8
21-25 33.6 67.2
26-30 28.8 52.5
31-35 26.9 47.6
36-40 20.5 43.3
41-50 20.8 37.6
2006
85-90%
85-90%
> 70%
8/6/2019 Lecture 12 Emergence of Labor Markets_revised
14/45
Comparison of Off-farm work, by age
range
Workers Aged 16-2
0%
20%
40%
60%
80%
100%
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
Year
Workers Aged 41-5
0%
20%
40%
60%
80%
100%
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Year
8/6/2019 Lecture 12 Emergence of Labor Markets_revised
15/45
Migration-fastest growing segment
0%
4%
8%
12%
16%
20%
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
Year
PercentofTotalWorkforce
MigrantWage
Earners
Self employed
TVE/Local
wage earning local
migrant
Self employed also growing fast sign of healthy
growth or break down of formal wage sector?
2006 > 20%
8/6/2019 Lecture 12 Emergence of Labor Markets_revised
16/45
Why is rural growth/
transformation important?
0
2
4
68
10
12
Total Inputs TFP
TFP
Annual growth rate
Alwyn Young, QJE
TFP
8/6/2019 Lecture 12 Emergence of Labor Markets_revised
17/45
Because in rapidly growing Asian
economies, a healthy rural economy is a
driver of growth!
0
1
2
3
4
Total IndustrialTFP
Ag TFP Shift Effect
TFP
Annual growth rate
This is the effect of taking a poor, underutilized young
son/daughter of a farmer and moving him/her into a factory
8/6/2019 Lecture 12 Emergence of Labor Markets_revised
18/45
Productivity Rise in Picture
From tending a plot of land smaller than
most of our gardens
8/6/2019 Lecture 12 Emergence of Labor Markets_revised
19/45
to jobs in the heart of Chinas industrialization zone
8/6/2019 Lecture 12 Emergence of Labor Markets_revised
20/45
Self employment-second fastest
growing segment
0%
4%
8%
12%
16%
20%
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
Year
PercentofT
otalWorkforce Migrant
Wage
Earners
Self employed
TVE/Local
wage earning local
migrant
Self employed also growing fast sign of healthy
growth or break down of formal wage sector?
2006 > 20%
2006> 15%
8/6/2019 Lecture 12 Emergence of Labor Markets_revised
21/45
0.2
0.3
0.4
0.5
0.6
0.7
0.8
Proportionofselfem
Trade/Transportation/
Enterprise
Custom labor provider/servic
While in some countries the rise of a self-employed sector is
seen as symptomatic of the failure of the formal wage sector, in
China there is evidence, the self employed sector is healthy,
growing and increasingly sophisticated
Relatively capital
intensive growth
rate of profits andcapital stock exceed
that of TVEs
8/6/2019 Lecture 12 Emergence of Labor Markets_revised
22/45
From petty traders and marginalized street
vendors
8/6/2019 Lecture 12 Emergence of Labor Markets_revised
23/45
... to manufacturers and
8/6/2019 Lecture 12 Emergence of Labor Markets_revised
24/45
to high-end tradesman!
Wh i h i l i
8/6/2019 Lecture 12 Emergence of Labor Markets_revised
25/45
What is happening to employment in
those old TVEs?
0%
4%
8%
12%
16%
20%
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
Year
PercentofT
otalWorkforce Migrant
Wage
Earners
Self employed
TVE/Local
wage earning local
migrant
Self employed also growing fast sign of healthy
growth or break down of formal wage sector?
2006 > 20%
2006> 15%
8/6/2019 Lecture 12 Emergence of Labor Markets_revised
26/45
Summary: how good are labor
markets
More movement (larger numbers)
More migration
Specialized (longer term)
Younger
More educated
Returns to Education?
8/6/2019 Lecture 12 Emergence of Labor Markets_revised
27/45
Educational Attainment and Return to Schooling
4
5
6
7
8
9
10
11
12
13
14
4 5 6 7 8 9 10 11 12
Africa Latin America
Asia
MidEast
Rural China
OECD
Years of education
Rateofretu
rn(%
8/6/2019 Lecture 12 Emergence of Labor Markets_revised
28/45
Other results on rising return to labor in
rural China overtime
Year Returns (%)
1988 0 (insignificant) 1992 4 (significant-10%)
1996 9 (highly significant)
2000 11 (rural migrants)
Zhang, Huang and Rozelle, 2001, JCE
Panel data of 113 hhds in Jiangsu (collected by authors)
8/6/2019 Lecture 12 Emergence of Labor Markets_revised
29/45
Educational Attainment and Return to Schooling
4
5
6
7
8
9
10
11
12
13
14
4 5 6 7 8 9 10 11 12
Africa Latin America
Asia
MidEast
Rural China
OECD
Years of education
Rateofretu
rn(%
Rural China--2000
8/6/2019 Lecture 12 Emergence of Labor Markets_revised
30/45
Summary: Descriptive Findings
Rapid Off-farm Employment Growth-- even in
the late 90s
Change is consistent with: a transition from agriculture to non-ag.
Percentage of workforce fully employed in agriculture
decreasing
Trends really clear among young workers
Shift from ruralto urban workforce started
Migration has become dominant form of off-farm work
8/6/2019 Lecture 12 Emergence of Labor Markets_revised
31/45
Policies
Three major policies:
Human capital
Human capital
Human capital
Why? In most developing countries, the most abundant
resource of rural residents is labor need to improve
its value.
Poor rural education largest constraint
Also: breakdown hukou system
[probably second largest distortion]
8/6/2019 Lecture 12 Emergence of Labor Markets_revised
32/45
8/6/2019 Lecture 12 Emergence of Labor Markets_revised
33/45
Educational Achievements
Nearly achievement of the two basics
1. universal compulsory education2. eradicating illiteracy
99% primary enrollment rate
99% retention rate for primary school
92% retention rate for middle school
Narrowing of the gender gap in education
Increase in teacher quality, e.g. more
teachers are certified
Diversification and increase in financial
resources for education Expansion of higher education
Emphasis on innovation and quality
8/6/2019 Lecture 12 Emergence of Labor Markets_revised
34/45
But, in rural areas schools can still be really poor
8/6/2019 Lecture 12 Emergence of Labor Markets_revised
35/45
Policies
Three major policies:
Human capital
Human capital
Human capital
Why? In most developing countries, the most abundant
resource of rural residents is labor need to improve
its value.
Poor rural education largest constraint
Also: breakdown hukou system
[probably second largest distortion]
8/6/2019 Lecture 12 Emergence of Labor Markets_revised
36/45
What are consequence of hukou
system? Too many to cover:
Although much less strict than during Socialist era (andearly reform period), still maintains privileges of urbanresidents
Two systems of health care / insurance
Two systems of social security Migrants come by themselves to city leave families
behind Family strains
Children education suffers
Dormitory life still little low cost housing
Plus: has effect on labor markets Feminization of agriculture?
Aging of farming?
My condo bought
8/6/2019 Lecture 12 Emergence of Labor Markets_revised
37/45
My condo bought
with 20% down; a
4.8 percent 20 year
variable mortgage
Isnt that a beautiful place
to live?
Unfortunately, migrants
could never afford to buy
Still policies biased against
permanent migration
8/6/2019 Lecture 12 Emergence of Labor Markets_revised
38/45
Feminization ofagriculture?
8/6/2019 Lecture 12 Emergence of Labor Markets_revised
39/45
Labor Feminization?
Household Share: Little Evidence of Ag Fem
0.48
0.49
0.50
0.51
0.52
0.53
0.54
0.55
0.56
0.57
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Es timate1 Es timat e2 Es timate3
Estimated Proportion of Farmwork by women within household
Source: CCAP survey
In fact, NO
EVIDENCE!
Aging of the
8/6/2019 Lecture 12 Emergence of Labor Markets_revised
40/45
Aging of the
countryside
these are thepeople that producChinas food
8/6/2019 Lecture 12 Emergence of Labor Markets_revised
41/45
Agricultural Feminization among
the Middle-Aged CohortsAge cohort Women Men
% workingon farm
Mean hoursin 2000
% workingon farm
Mean hoursin 2000
16-25 32.8 544 39.5 551
26-35 81.2 849 76.5 793
36-45 91.2 944 86.7 861
46-55 86.0 911 90.3 892
Over 55 40.4 575 69.2 833
All 65 827 70 803
8/6/2019 Lecture 12 Emergence of Labor Markets_revised
42/45
But, aging is also apparent
Age cohort Women Men
% workingon farm
Mean hoursin 2000
% workingon farm
Mean hoursin 2000
16-25 32.8 544 39.5 551
26-35 81.2 849 76.5 793
36-45 91.2 944 86.7 861
46-55 86.0 911 90.3 892
Over 55 40.4 575 69.2 833
All 65 827 70 803
Even if cant call it feminization it is fair to say: womenhold up half the sky
8/6/2019 Lecture 12 Emergence of Labor Markets_revised
43/45
Conclusions-1
Trends in rural labor force in China areconsistent with a healthy development path(add to rural incomes)
Labor markets have contributed to growth Further policy change can help or hinder
movement Urban policies (remove hukou: building towns,
loosening restrictions on movement)
Rural policies (strengthening rural educationand health HC / HC / HC)
8/6/2019 Lecture 12 Emergence of Labor Markets_revised
44/45
Conclusions-2
Rosy picture?
Maybe from macro / micro point of view
BUT: remember:
These guys have brutal lives
Work is hard dangerous dirty So, if it is hard dangerous and dirty: Why
would parents send their kids to thesesweat shops; coal mines; Karokes?
Preferences Environment and Behavior in Rural China
8/6/2019 Lecture 12 Emergence of Labor Markets_revised
45/45
Risk and Infor
Preferences, Environmentand Behavior in Rural China
Environment:
Risk and costly
poor information
Preferences