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Labor Market Outcomes and Reforms in China

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  • Xin Meng
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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.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.26.4.75
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Bibliographic Info

Article provided by American Economic Association in its journal Journal of Economic Perspectives.

Volume (Year): 26 (2012)
Issue (Month): 4 (Fall)
Pages: 75-102

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Handle: RePEc:aea:jecper:v:26:y:2012:i:4:p:75-102

Note: DOI: 10.1257/jep.26.4.75
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Cited by:
  1. Stark, Oded & Jakubek, Marcin, 2013. "Integration as a catalyst for assimilation," University of Tuebingen Working Papers in Economics and Finance 59, University of Tuebingen, Faculty of Economics and Social Sciences.
  2. Mehlum, Halvor & Torsvik, Ragnar & Valente, Simone, 2013. "China's Savings Multiplier," Memorandum 17/2013, Oslo University, Department of Economics.
  3. Gustafsson, Björn Anders & Li, Shi & Nivorozhkina, Ludmila & Wan, Haiyuan, 2014. "Yuan and Roubles: Comparing Wage Determination in Urban China and Russia at the Beginning of the New Millennium," IZA Discussion Papers 8241, Institute for the Study of Labor (IZA).
  4. Rickne, Johanna, 2013. "Labor market conditions and social insurance in China," China Economic Review, Elsevier, vol. 27(C), pages 52-68.
  5. Roland Döhrn & Philipp an de Meulen & Daniela Grozea-Helmenstein & Tobias Kitlinski & Torsten Schmidt & Simeon Vosen, 2013. "Die wirtschaftliche Entwicklung im Ausland: Zögerliche Erholung der Weltwirtschaft," RWI Konjunkturbericht, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, pages 36, 03.
  6. Akgüc, Mehtap & Giulietti, Corrado & Zimmermann, Klaus F., 2013. "The RUMiC Longitudinal Survey: Fostering Research on Labor Markets in China," IZA Discussion Papers 7860, Institute for the Study of Labor (IZA).

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