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How Important was Labor Reallocation for China's Growth? A Skeptical Assessment

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  • Longfeng Ye
  • Peter E. Robertson

Abstract

Numerous studies report the growth effects from labor reallocation in China to be in the order of 1–2 percentage points per year, which would appear to be a significant fraction of China's per capita income growth. We show that the total factor productivity gains are an order of magnitude smaller, at only 0.25 percentage points per year. There are two reasons for this difference. First, the majority of studies have used a decomposition method that effectively assumes linear production functions. This results in values that are much larger than the more appropriate Denison–Kuznets method. Second, we also allow for sectoral differences in human capital. We conclude that the gains from labor reallocation may have been a far less important source of China's growth than is conventionally thought.

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  • Longfeng Ye & Peter E. Robertson, 2018. "How Important was Labor Reallocation for China's Growth? A Skeptical Assessment," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 64(4), pages 828-852, December.
    • Handle: RePEc:bla:revinw:v:64:y:2018:i:4:p:828-852
    DOI: 10.1111/roiw.12301
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    Cited by:

    1. Zhou, Yixiao & Tyers, Rod, 2019. "Automation and inequality in China," China Economic Review, Elsevier, vol. 58(C).
    2. Shengqin Wu & Degang Yang & Fuqiang Xia & Xinhuan Zhang & Jinwei Huo & Tianyi Cai & Jing Sun, 2022. "The Effect of Labor Reallocation and Economic Growth in China," Sustainability, MDPI, vol. 14(7), pages 1-22, April.
    3. Ye, Longfeng & Robertson, Peter E., 2019. "Hitting the Great Wall: Structural change and China's growth slowdown," China Economic Review, Elsevier, vol. 56(C), pages 1-1.

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