Shock and Recovery in China’s Labour Market : - PowerPoint Presentation

Slide1

Shock and Recovery in China’s Labour Market :Flexibility in the Face of a Global Financial CrisisCEA Conference on Global Economic Recovery: the Role of China and Other Emerging Economies, University of Oxford, July 12-13, 2010

Albert Park, University of Oxford, CEPR, and IZA

Fang Cai and Yang Du, Chinese Academy of Social Sciences

John Giles, World Bank and IZASlide2

Presentation GoalsDocument and interpret what happened to workers in China since the crisisOfficial dataFirm surveys (PBC-CASS enterprise survey 2009)Household surveys (China Urban Labor

Survey 2010)

Discuss key employment challenges moving forward

Labor

market shortage?

Enforcement of

labor

regulations

Labor

market informalitySlide3

China’s Labor Market Before the CrisisRising real wages for migrants since 2005 (reaching double digit increases)Steady increases in rural-urban migration (145 million individual migrants in 2009)

Rapid

informalization

of the urban

labor

market (by 2005, >50% of urban workers were employed informally)

China implemented a landmark

Labor

Contract Law starting on January 1, 2008

Growth slowdown started in early 2008, before the crisisSlide4

National employment by registration status, 1978-2008Slide5

Reasons for rising informalityBy keeping workers off the books, employers can avoid payroll taxes for social insurance programs (equal to 27% (18%) of wages for local (migrant) workers).Young workers may prefer cash wages to social insurance coverage, esp. when benefits are not portable

Rise of the private sector (harder to monitor and regulate)

Massive inflow of migrants (less concern about protections for migrants) Slide6

China’s Labor Contract LawEffective: January 1, 2008Labor Contracts

After 2 fixed-term contracts, or 10 years of employment, contract must be open-ended

Limits on probationary period (1-3 months depending on contract length)

Regulations on temporary work agencies (

labor

service companies

Severance conditions

30-day written notice

Severance pay: one month’s pay for each year of service (half month’s pay if less than 6 months), double severance pay for unfair dismissalSlide7

Global Economic Crisis and China’s External TradeSlide8

China Quarterly Growth Rates

Growth was slowing prior to the crisis and rebounded quicklySlide9

China’s response to crisisMassive economic stimulus packageSupport to enterprises: suspend tax paymentssocial insurance contributions delayed and/or reduced credit expansion

wage subsidies

Expansion of

labor

training programs

Expansion of safety net programs (esp. rural minimum living standards subsidies)

Expanded social insurance coverage (including portable pension and unemployment insurance for migrants)Slide10

China’s $560 billion stimulus packageSlide11

How did the crisis impact employment?Job vacancy rates fell but bounced back quicklyUp to 20 million migrant workers lost jobs temporarily (MOA, NBS surveys)2/3 of those losing jobs reemployed by summer 2009 (Rozelle et al., 2009)Migrant employment in cities increased by 2.9% from 2008 to 2009 (to 145 million) (NBS)

By 2010, very low urban unemployment rates but lower

labor

force

participation (CULS)Slide12

Job vacancies declined during crisis but bounced back quicklySlide13

China National Firm Survey, November 2009Surveyed firms in 8 provinces: 4 coastal provinces (Shandong, Jiangsu, Zhejiang, and Guangdong), one northeast province (Jilin), one central province (Hubei), one northwest province (Shaanxi), and one southwest province (Sichuan).Representative sample of >2000 manufacturing firms in 25 municipalities

Sampling frame: all firms who ever had credit relationship with any financial institution

Key collaborator: People’s Bank of China Research DepartmentSlide14

Changes in employment, China firm survey 2009(% change from 6 months earlier)

Crisis hit exporters, foreign-invested firms, and larger firms the hardest.Slide15

Changes in employment of migrants versus local residents, China firm survey 2009(% change from 6 months earlier)All workers affected by the crisis, but migrants more adversely affectedthan local workers, especially in exporting firms.Slide16

What best describes your current employment situation? (China firm survey 2009)

Still very high

labor

demand, despite regulations and recent negative shocks.

State/collective sector still plagued by surplus

labor

.Slide17

China Urban Labor Survey, February 2010In each of 6 cities, survey 700 local resident households and 600 migrant households In 5 completed cities, surveyed 13,000 adults, including 9000 local residents 5000 migrants

3-stage PPS sampling of urban sub-districts,

neighborhoods

, and households

Detailed enumeration of all dwellings in each

neighborhood

Surveys directed by CASS, working closely with city Statistical BureausSlide18

Working hours and earnings before and after the crisis, (CULS, 2010)Slide19

Real Wages of Migrants Continued to Increase through the Crisis

NBS=National Bureau of Statistics

RCRE=Research

Center

for Rural Economy (Ministry of Agriculture)

PBC=People’s Bank of ChinaSlide20

Where did the jobs come from?Migrant employment by sector, 2008 and 2009

Units: %. Source: Sheng

Laiyun

of NBS (2009)Slide21

Reasons for Rising Wage PressureThe end of surplus labor?Appeal of the New Socialist CountrysideRising costs of livingLooking forward:

labor

demand and supply

Q: Could rising wages be good for China?Slide22

How strictly have labor regulations been enforced? (China firm survey 2009)

Firms report strict enforcement, with no weakening during the crisis.

Smaller firms report less strict enforcement than larger firms.Slide23

Determinants of enforcement laxity

Dependent variable (ordered

probit

):

0=very strict, 1=strict, 2=not strict

Reference categories:

food and beverage

state sector

Zhejiang

Size quartile 4 (smallest size)

2007

Findings: enforcement stricter for:

- capital producers

- state sector

- Sichuan, Jiangsu, Jilin (no strong

pattern)

- exporters

- large firms

- most recent periodSlide24

Has new Labor Law influenced your firms hiring and firing decisions? (China firm survey 2009)

One third of firms report that new

Labor

Law has influenced employment decisions.

Influence greatest for foreign firms, but

not much different for exporters and

non-exporters.

However, preliminary regression analysis

finds no relationship between degree of

enforcement and actual changes in

employment . Slide25

Informality by residence status(CULS, 2001, 2005, and 2010)

Notable reduction in informality of migrant employmentSlide26

Informality rates over time(CULS, 2001, 2005, 2010)Slide27

Labor contract status (CULS, 2010)Slide28

Informal employment incidence, working hours, and earnings(China Urban Labor Survey, 2010)Slide29

Awareness of labor law provisions(CULS, 2010)

Workers are aware of right to a

labor

contract, but vary in their familiarity with

Specific provisions. Migrants and local residents have similar levels of awareness.Slide30

Social insurance coverage rates(CULS, 2005 and 2010)Progress increasing coverage of migrants, and expanding health insurance coverage,(especially to nonworking individuals)Slide31

Reflections on recent events: Foxconn and Honda in ChinaSlide32

ConclusionsCrisis had very short-term impacts on employmentLabor Law is being implementedViewed as costly by enterprisesTrend of increasing informality reversed

…but no strong evidence of adverse impacts on employment

Rising employment and wages

Increasing prevalence of

labor

contracts and social insurance coverage

Suggests that robust

labor

demand is enabling regulatory reformSlide33

ChallengesLabor Law may become increasingly constraining over timeTradeoffs between labor regulation and expansion of formal employment could emerge in future economic slowdowns

Increasing

labor

scarcity will require continued investments to raise

labor

productivity and enhanced mobility to exploit dynamic comparative advantage