Labour Market Reform in China (review)

This book examines the main institutional changes in China's labor market during the first two decades of economic reform. It presents a series of analyses of key components of China's segmented labor market—the rural, urban, and migrant- labor sectors. It also examines related issues of enterprise and social-security reform that are essential for a well-functioning labor market. The central thesis of the book is that economic growth has not been accompanied by adequate labor market reforms, particularly within the urban state sector, and that a more systematic restructuring of China's labor arrangements is essential if high growth rates are to be sustained.

In developing her argument, the author draws on a series of empirical studies undertaken during the 1990s, using several data sources from the mid-1980s to the mid-1990s. Many of the studies have already been published in some form, mainly as journal articles. A short introductory chapter lays out the pre-reform labor arrangements that produced extreme immobility of labor and disincentives to productivity, and provides the context for assessing how far China has moved in each sector toward a competitive labor market characterized by mobility of labor and rewards to productivity. A "conventional" neoclassical model thus provides the basis for evaluating the extent of China's labor market reforms and the areas where further change is required.

Through each piece of analysis the author builds up a picture of different degrees of convergence with the neoclassical model, showing variation from the more competitive labor markets found in the rural agricultural sector to constrained and imperfect urban labor arrangements. The key findings of each chapter are as follows. First, rural agricultural labor markets are reasonably competitive, with evidence of rewards to human capital and with labor supply becoming responsive to changes in wage rates—which was not the case in the pre-reform era. Second, in the rural nonagricultural (Township and Village Enterprise— TVE) sector, wages are related to experience and firm tenure, although the results are less clear for education. For those finding jobs through market channels, however, education is rewarded. Overall, then, the TVE sector retains features that diverge from the expectations of a neoclassical model but with some movement toward greater rewards to productivity. Third, despite the apparent ease of labor mobility between the rural agricultural and nonagricultural sectors, we do not see a convergence of wages between them, a result that is explained by institutional factors and technological dualism.

Turning to the urban labor market, the main problem identified is the constraint on labor mobility, which in turn is posited to reflect more fundamental problems with the state-sector ownership structure. Reforms over the period examined in this book had not led to a productivity-related wage-determination system; instead, overstaffing continued, with wages determined by the profitability of the enterprise rather than labor productivity. The enterprise-linked social-security system was a major barrier to mobility. In terms of rural-urban migration, a significant rural-urban wage gap remains, although with regional variations, and migration remains constrained by institutional factors, including poor information flows. Relaxing these constraints would, in the author's view, lead to significant economic gains.

While the findings tell a credible story of a labor market undergoing an uneven transition process, it is perhaps unfortunate that the completion of the book coincided with some major policy changes—to which the author's arguments point. From around 1998, new efforts were initiated to grapple with state-sector restructuring and social-security reform; workers were laid off in much larger numbers; efforts to provide labor-market information and training for alternative forms of employment were dramatically expanded; and there has been a gradual and ongoing dismantling of some of the institutional barriers to migration. While the reforms are far from resolving all the problems highlighted in this volume, China's labor market looks significantly different in 2003 from when many of these analyses were undertaken. At the same...