China's Rural Labor Migration and Its Economic Development. Xiaoguang Liu

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      Figure 1.6. China’s resident savings rate (2000–2009).

      Source: 2001–2010 Fund Flow Statement in The China Statistical Yearbook.

3. The riddle of “Okun’s Law” not being applicable to China

      In recent years, China’s job market has maintained a good condition without being significantly affected in the context of the economic downturn. For example, the registered urban unemployment rate was about 4% and the surveyed unemployment rate was about 5% in 2014, almost unchanged from 2013. Moreover, China’s economic performance since the reform and opening-up suggests that, as for the market of China’s labor force and its macroeconomic fluctuations, a significant inverse relationship has not been established between the GDP growth rate and the unemployment data, as inferred by the standard model of Okun’s law. This seems to show that China’s macroeconomic cycle lacks a due correlation with the changes in the labor market, or the model of Okun’s law is not applicable to the Chinese empirical data.

      Okun’s law, as a standard model of modern macroeconomics textbooks, is essentially used to analyze the relationship between a country’s macroeconomic cycle and the labor market changes, and its specific form is to reveal the stable negative relationship between a country’s unemployment rate and actual output. Figure 1.7 shows the annual data of the changes in the US unemployment rate and the economic growth rate from 1948 to 2013, indicating that the Okun relationship was roughly established. In the late 1970s, China began to implement the reform and opening-up policy and gradually set up an institutional framework for the market, with an annual growth rate of nearly 10% achieved over the past 30 years. The intensification of the market-oriented reform led to an increase in the unemployment pressure in China in the late 1990s, which prompted the government to give importance to the objectives of the employment policy. Quite a lot of the literature has focused on the relationship between Okun’s law model and the Chinese data in academic circles. Surprisingly, as shown in Figure 1.8, there is no significant inverse relationship between China’s GDP growth rate and the official unemployment rate as described by Okun’s law, which is in sharp contrast with the situation in the United States.

      Figure 1.7. Okun’s law for the United States (1948–2013).

      Source: The Bureau of Economic Analysis (BEA) and the Bureau of Labor Statistics (BLS).

      Researchers have investigated the applicability of Okun’s law in China from different aspects. Some scholars have discovered that there is no significant relationship between the change in the rate of registered urban unemployment and the economic growth rate in China, and that the real GDP growth rate and the change in the rate of unemployment vary greatly from the assumed form of Okun’s law.¹³ Yin Bibo and Zhou Jianjun also pointed out that the negative relationship between China’s economic growth rate and the growth rate of employed people proves the inapplicability of Okun’s law in China.¹⁴ Fang Fuqian and Sun Yongjun tested the five versions of the empirical form of Okun’s law, such as difference, gap, asymmetry, etc., and found out that none of them is applicable to the Chinese situation.¹⁵ By calculating the Okun equation in the expansion period and the recession period, Lin Xiumei found that the coefficient of the rate of unemployment on the growth rate is very small, and only when the value of the deviation trend of the growth rate is about 20 percentage points was the change in the rate of unemployment about 1 percentage point, reflecting the fact that the expansion stage coefficient is a plus sign and is inconsistent with the theoretical hypothesis.¹⁶ The results of the calculation of the Okun equation of the three industries by Zou Wei based on the data of the three industries show that a significant Okun relationship exists between the primary and secondary industries, and the positive Okun coefficient estimation sign of the tertiary industry deviates from the predicted meaning of Okun’s law.¹⁷

      Figure 1.8. Changes in China’s GDP growth rate and unemployment rate (1979–2012).

      Note: The data come from the China Statistical Yearbook over the years, estimated by the author.

      The above basic empirical facts and the results of the research on the relationship between the unemployment rate and the macroeconomic fluctuation indicate that it is “unacclimatized” to directly apply the existing model of Okun’s law to China. So what is the root cause of this phenomenon? What is the real form of China’s Okun relationship? The answers are undoubtedly of great theoretical and practical significance for judging China’s current employment situation and for formulating labor market policies.

II. The Understanding of China’s Economy from the Perspective of the Transfer of Agricultural Labor

      The three basic characteristics or riddles of China’s economic development can be understood from different perspectives. Based on the empirical observation of China’s economic transformation, it is clear that behind China’s high investment, high savings rate and high capital return, a common supporting factor is the continuous large-scale transfer of agricultural labor. What’s more, the short-term change in the transfer of agricultural labor relative to its long-term trend is also a key variable that reflects the relationship between the labor market and the macroeconomic cycle, eventually forming a unique form of correlation between China’s labor market and the fluctuation of the macroeconomic cycle. Therefore, this book attempts to analyze the three riddles of China’s economic development from the transfer of agricultural labor so as to gain some understanding of China’s economic developmental model.

      The track of the reform and development of China’s labor market shows that the large-scale transfer of agricultural labor has not only brought about profound changes to China’s labor market but has also greatly boosted economic growth and the improvement of the efficiency of production. Before the reform and opening-up, China implemented a strict household registration system to tightly control the flow of farmers into cities, thus forming a separated urban–rural labor market. Since the reform and opening-up, China has gradually relaxed the restrictions on the movement of farmers in policy to adapt to the rapid development of non-agricultural sectors. The agricultural labor force has been shifting to non-agricultural sectors at an annual rate of 8 million for more than 30 years. In 2014, the number of migrant workers reached 274 million, accounting for more than half of the employed population in non-agricultural sectors.

      The continuous large-scale transfer of agricultural labor has not only completely changed the fundamental characteristics and efficiency of the configuration of China’s labor market but has also profoundly affected China’s investments, savings, technological progress, urban–rural income distribution and macroeconomic fluctuations, and more importantly, it has played a vital role in the rapid development of urban sectors. Research shows that the transfer of agricultural labor is closely associated with the improvement of China’s total factor productivity,¹⁸ the rapid development and exports of the manufacturing industry,¹⁹ the high savings rate and the high investment rate,²⁰ the change in the pattern of income distribution²¹ and other important macroeconomic characteristic phenomena. Du Yang et al. discovered through their latest research that the flow of the labor force from rural areas to urban areas is conducive to expanding the size of the labor market and improving the total factor productivity of the СКАЧАТЬ