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The Effect of Labor Reallocation and Economic Growth in China

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  • Shengqin Wu

    (State Key Laboratory of Desert and Oasis Ecology, Xinjiang Institute of Ecology and Geography, Chinese Academy of Sciences, Urumqi 830011, China
    College of Resources and Environment, Chinese Academy of Sciences, Beijing 100049, China)

  • Degang Yang

    (State Key Laboratory of Desert and Oasis Ecology, Xinjiang Institute of Ecology and Geography, Chinese Academy of Sciences, Urumqi 830011, China
    College of Resources and Environment, Chinese Academy of Sciences, Beijing 100049, China)

  • Fuqiang Xia

    (State Key Laboratory of Desert and Oasis Ecology, Xinjiang Institute of Ecology and Geography, Chinese Academy of Sciences, Urumqi 830011, China)

  • Xinhuan Zhang

    (State Key Laboratory of Desert and Oasis Ecology, Xinjiang Institute of Ecology and Geography, Chinese Academy of Sciences, Urumqi 830011, China)

  • Jinwei Huo

    (State Key Laboratory of Desert and Oasis Ecology, Xinjiang Institute of Ecology and Geography, Chinese Academy of Sciences, Urumqi 830011, China)

  • Tianyi Cai

    (State Key Laboratory of Desert and Oasis Ecology, Xinjiang Institute of Ecology and Geography, Chinese Academy of Sciences, Urumqi 830011, China
    College of Resources and Environment, Chinese Academy of Sciences, Beijing 100049, China)

  • Jing Sun

    (State Key Laboratory of Desert and Oasis Ecology, Xinjiang Institute of Ecology and Geography, Chinese Academy of Sciences, Urumqi 830011, China
    College of Resources and Environment, Chinese Academy of Sciences, Beijing 100049, China)

Abstract

In recent years, China’s economic growth rate has slowed down significantly, exceeding the normal range of cyclical fluctuations in terms of declining rate and period. However, the research on the structural problems of the economic slowdown from the sector level is still limited. This paper uses a novel index decomposition method to decompose the covariant effect according to the influence of factors. It separates the labor input effect (LIE), labor reallocation effect (LRE), and labor productivity effect (LPE) from China’s economic growth rate from 1989 to 2019. The evolving characteristics and influence of these effects are revealed. It also focuses on the structural problems of the economic slowdown caused by the LRE. The study found that: (i) the economic contribution rate of LIE declined during the study period and had recently shown a negative value; (ii) the economic contribution rate of LRE peaked in 2014 and then rapidly declined; (iii) LPE has always been an essential contributor to China’s economic growth, with an annual contribution rate of 80%. The key factors behind China’s downward economic growth are the decline of the new labor force input, the weakening of LRE, and the technological progress rate in some sectors that have declined. The analysis of the LRE found that 37% of the economic slowdown could be explained by it. The reason behind economic slowdown lies in how the labor force transfers: (i) from agriculture to non-modern services without manufacturing; and (ii) from high-productivity sectors (usually manufacturing) to low-productivity sectors (usually non-modern services). In order to reduce the downward pressure of economic growth, future development intervention measures should focus on improving the employment absorption capacity of manufacturing, enabling enterprise innovation, correcting distorted industrial development policies, and prudently treating environmental protection policies and industrial upgrading policies.

Suggested Citation

  • 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.
    • Handle: RePEc:gam:jsusta:v:14:y:2022:i:7:p:4312-:d:787316
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    1. Lipeng Sun & Nur Ashikin Mohd Saat, 2023. "How Does Intelligent Manufacturing Affect the ESG Performance of Manufacturing Firms? Evidence from China," Sustainability, MDPI, vol. 15(4), pages 1-20, February.

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