A Theoretical Model of the Chinese Labor Market
AbstractThis paper constructs a theoretical labor market model for China, and utilizes the model to examine the effects of various labor market policies on economic well-being. Two key features of the model are a segmented labor market involving three sectors – state-owned enterprises, private enterprises, and agriculture – and China's unique household registration system (hukou). The major existing theoretical models of employment and development – the Lewis model, the integrated labor market model, the Harris-Todaro model, and various segmented labor market models – stylize different developing countries' labor markets in other ways but do not include these two key features. The paper first formulates the equations of the model, then obtains a closed form solution given initial conditions, and then deduces the labor market and welfare consequences of several policy interventions, which include promoting rural development, reducing the cost-of-living in urban areas for rural hukou holders, and offering some rural workers the chance to convert from rural to urban hukou status. These policy interventions are analyzed using two alternative welfare criteria: first-order stochastic dominance and an abbreviated social welfare function. Using both social welfare criteria, it is shown that the rural development policy is unambiguously welfare-improving, while the other two policies have ambiguous effects on social welfare. None of these policies is unambiguously welfare-decreasing.
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Bibliographic InfoPaper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 7278.
Length: 48 pages
Date of creation: Mar 2013
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Find related papers by JEL classification:
- I3 - Health, Education, and Welfare - - Welfare and Poverty
- J2 - Labor and Demographic Economics - - Demand and Supply of Labor
- O1 - Economic Development, Technological Change, and Growth - - Economic Development
- O53 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-03-23 (All new papers)
- NEP-LAB-2013-03-23 (Labour Economics)
- NEP-LTV-2013-03-23 (Unemployment, Inequality & Poverty)
- NEP-TRA-2013-03-23 (Transition Economics)
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