Labor Market Outcomes and Reforms in China

Abstract

Over the past few decades of economic reform, China's labor markets have been transformed to an increasingly market-driven system. China has two segregated economies: the rural and urban. Understanding the shifting nature of this divide is probably the key to understanding the most important labor market reform issues of the last decades and the decades ahead. From 1949, the Chinese economy allowed virtually no labor mobility between the rural and urban sectors. Rural-urban segregation was enforced by a household registration system called “hukou.” Individuals born in rural areas receive “agriculture hukou” while those born in cities are designated as “nonagricultural hukou.” In the countryside, employment and income were linked to the commune-based production system. Collectively owned communes provided very basic coverage for health, education, and pensions. In cities, state-assigned life-time employment, centrally determined wages, and a cradle-to-grave social welfare system were implemented. In the late 1970s, China's economic reforms began, but the timing and pattern of the changes were quite different across rural and urban labor markets. This paper focuses on employment and wages in the urban labor markets, the interaction between the urban and rural labor markets through migration, and future labor market challenges. Despite the remarkable changes that have occurred, inherited institutional impediments still play an important role in the allocation of labor; the hukou system remains in place, and 72 percent of China's population is still identified as rural hukou holders. China must continue to ease its restrictions on rural–urban migration, and must adopt policies to close the widening rural–urban gap in education, or it risks suffering both a shortage of workers in the growing urban areas and a deepening urban–rural economic divide.

Determinants of Social Insurance Coverage in the Philippines

“…Rickne [22] studied the relationship between labor market conditions and social insurance participation among Chinese industrial firms and found that the increased scarcity of labor, large shares of uninsured workers, large shares of low-educated workers and those without labor unions were quantitatively important drivers of participation. The results of his tests were supported by the findings of the studies by different authors, namely: Cai [23], Meng [24], and Blechova et al [25] impact of aging population and rural-urban migration; Lu, Tao and Wang [26] unionization; Nyland et al [27]; Nielsen and Smith [28] negative association of firm size; Mao et al [29] positive association of firm size; Nyland et al [30], Cheng et al [31], Guo and Gao [32], Smyth et al [33] education impact; Nielsen et al [34], Smyth et al [33] urban residence permit; Gao et al [35] labor contract status.…”

Insuring against health shocks: Health insurance and household choices

“…Tuition is free for the 9 years of schooling (primary and lower-middle school education), although students normally have to pay costs associated with purchasing books and tools, transportation, fees related to extracurricular activities, and fees for boarding school (which is quite common in rural areas). 29 In addition, there are opportunity costs in terms of forgone earnings (especially from employment opportunities in cities), which may be increasingly high as children enter their late teens (Meng, 2012).…”

Integration as a catalyst for assimilation

“…In urban China, migrants from the rural areas have limited access to the social services to which urban hukou holders are entitled. 16 For example, in 2010, 20 percent of the migrants had access to health insurance, as opposed to 87 percent of workers with urban hukou (Meng 2012); migrant children are often denied access to public schools; and so on. As a result of institutional discrimination, "[t]he labor markets for urban hukou workers and migrant workers are segregated" (Meng 2012, p. 92, emphasis added).…”

“…This regime and the policy stance forging it are tantamount to institutional non-integration (social non-integration) which, as we have argued, curbs an incentive to assimilate in the economic sphere and increase productivity. There is concomitant evidence of an earnings gap: hourly wages of urban hukou workers are double those of migrants (Meng 2012). This segregation, reinforced by the hukou policy, could be why migrants do not feel the heat of this gap.…”