Labour Conditions

During the first three decades of the Reform Period, China profited immensely from the demographic dividend, having at hand an immense pool of young people from the countryside which immigrated into the cities and dedicated their labour force to the emerging industries, from construction business to the export sector. Labour was abundant, and low-cost.

In the same time, labour conditions changed thoroughly. While many peasants engaged in heavy physical labour forty years ago, automation is increasing, and in many fields, China has become a leading nation in the use of robots in manufacturing processes. Unskilled labour as three or four decades ago is by and by replaced by qualified labour.

Yet still today, the labour force of China is, at least in the urban area, relatively young, with only 36 years on average (Naughton 2018: 210), because of the continuing influx of migrant workers from the countryside. Moreover, statutory retirement age is only 55 (Naughton 2018: 211). One reason for early retirement is the high work load with 45 hours per week in 2010 (Naughton 2018: 212).

The share of women in the urban workforce has declined since the beginning of the Reform Period. Participation of females in labour used to be almost as high as that of males, but the reduction of the number of state-owned enterprises was in the first place carried out by lying off women. Yet if focusing on college-educated persons, the share of women working is as high as that of men. Average retirement age is particularly low among urban women (c. 50 years), while that of rural women is ten years later (Naughton 2018: 211).

In the urban area, 15% of employees are today (2013) working in state-owned enterprises, 22% in private enterprises, 8% in foreign-owned enterprises, 16% are self-employed, 11% receive their salaries by the state, and 16% live from the informal sector, meaning that they will not profit from any social insurance programme.

The number of employees in SOEs shrank drastically from the mid-1990s on – at that time still accounting for about half of urban workers. The trigger for this development was the policy of only keeping the largest and most profitable SOEs alive (zhuada fangxiao 抓大放小). The outcome of this decision was a huge number of laid-off persons (xiagang 下岗) many of whom were absorbed in reemployment centres (jiuye xunlian zhongxin 就业训练中心) which provided training and support in finding new jobs. The most critical time of unemployment was the period from the late 1990s to the early 2000s, when government measures and the booming urban economy absorbed large numbers of unemployed people, while others retired or changed into the informal sector. During that period, urban unemployment ranged between 8 and 10% (Naughton 2018: 215). Chinese statistics discern between laid-off people and unemployed people (shiye 失业). The rate of "unemployed people" in urban areas in 2002 was 3.6% (Guowuyuan Xinwen Bangongshi 2002).

The unemployment rate is alleviated by the large number of migrant workers which are sensitive to economic trends (elasticity in the labour market). In period of economic slowdown they can leave the cities and return to villages to seek for employment elsewhere. This flexibility is a result of the hukou policy which denies migrant workers regular residence permits in cities.

Migrant workers are predominantly employed in the manufacturing business (35%) and the construction business (xxx), and only 6% of migrants run their own business (Naughton 2018: 216). Quite a few migrant workers are employed on a day-to-day basis and are hired through labour gangs. Generally seen, urban residents and immigrants work in separate labour markets, with those of rural origin working in more monotonous and demanding jobs.

The Labour Law from 2008 (Zhonghua Renmin Gongheguo laodong fa 中华人民共和国劳动法, rev. 2015) and the Labour Contract Law from 2008 (Zhonghua Renmin Gongheguo laodong hetong fa 中华人民共和国劳动合同法) require employers to provide labour contracts, refrain from arbitrary lay-offs, and include workers in social insurance measures. Nonetheless, many employers refuse to realize the stipulations of the law in order to save labour cost.

The change of economic pattern had an impact on the labour market. Today, different skills are required than 30 years ago. Moreover, the surplus of rural labour might be exhausted which leads to a phenomenon known as the Lewis turning point (Das & N'Diaye 2013; Zhang, Yang & Wang 2011). This point is marked by increases of labour cost both in urban and in rural areas, leading to decrease in economic growth or even financial turmoil if productivity does not keep pace with wage increases.

Wages of migrant labours skyrocketed after 2002 and reached (with an interlude during the Financial Crisis in 2007) a peak in 2010 with an annual growth of 10% (Naughton 2018: 231). In the same time, the wage growth of state employees or workers of state-owned enterprises diminished. The tendency is a prove that the supply of labour from the countryside has stopped. The supply has become inelastic insofar as only substantial increases in wages can entice rural people to leave their villages.

Another reason for wage increases is improved education. The impact of education (apart from experience) on productivity can be measured by the Mincer earnings function, namely

According to this model, the number of years in education is related directly, and the number of years of practical experience related in a quadratic way to the earnings.

During the full-fledged socialist period, education did barely play a role for the height of income, while Party membership, gender, and seniority were more significant. Yet education began to play an important role from the 1990s. Huge private investments in schooling yielded in substantial effects of income. The relative scarcity of education in China in comparison to industrialized countries made it a valuable good, investment into which bore and still bears fruits. Management skills and proficiency in English are assets for employment in firms paying higher wages. Today, 15% of Chinese enjoyed higher education (Naughton 2018: 225). Yet this trend increased the educational gap between urban and rural areas. There is also a gender gap in wages of about 20% (Naughton 2018: 227). Finally, recent trends show a correlation between Party membership and height of income (Naughton 2018: 227).