Estimating rural labour surplus in China - A dynamic general equilibrium analysis

China’s dramatic economic growth during the past three decades is characterised by rapid industrialisation that was fuelled by a large pool of rural surplus labour in the agricultural sector. The large scale movement of labour from the agricultural to the industrial and services sectors witnessed in recent years raises pertinent questions about its sustainability: is there still a pool of surplus labourers in rural China? If there is, how large is that pool and how long can it last? These questions are hotly debated in China. The present study contributes to that discussion by providing new quantitative information about the size of the surplus labour. Applying a dynamic general equilibrium model of China’s economy the paper estimates the size of the rural labour surplus from 1997-2005 and forecast its size from 2006 -2015. Alternative simulation estimates the effect on the size of the rural labour surplus under the assumption of accelerated improvement of labour productivity in China’s agricultural sector.