Lewisian Turning Point in the Chinese Economy

Lewisian Turning Point in the Chinese Economy

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Lewisian Turning Point in the Chinese Economy Comparison with East Asian Countries Edited by Ryoshin Minami Hitosubashi University, Japan Fumio Makino Faculty of Economics, Hosei University, Japan and Kwan S. Kim Kellogg Institute for International Studies, University of Notre Dame, Indiana, USA

Selection and editorial matter Ryoshin Minami, Fumio Makino and Kwan S. Kim 2014. Individual chapters Contributors 2014. Softcover reprint of the hardcover 1st edition 2014 978-1-137-39725-6 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No portion of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, Saffron House, 6 10 Kirby Street, London EC1N 8TS. Any person who does any unauthorized act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The authors have asserted their rights to be identified as the authors of this work in accordance with the Copyright, Designs and Patents Act 1988. First published 2014 by PALGRAVE MACMILLAN Palgrave Macmillan in the UK is an imprint of Macmillan Publishers Limited, registered in England, company number 785998, of Houndmills, Basingstoke, Hampshire RG21 6XS. Palgrave Macmillan in the US is a division of St Martin s Press LLC, 175 Fifth Avenue, New York, NY 10010. Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world. Palgrave and Macmillan are registered trademarks in the United States, the United Kingdom, Europe and other countries ISBN 978-1-349-48485-0 ISBN 978-1-137-39726-3 (ebook) DOI 10.1057/9781137397263 This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. Logging, pulping and manufacturing processes are expected to conform to the environmental regulations of the country of origin. A catalogue record for this book is available from the British Library. A catalog record for this book is available from the Library of Congress.

Contents List of Figures List of Tables Preface List of Contributors viii x xii xiv Introduction 1 Turning Point in the Labor Surplus Economy: Concept and Approach 3 Ryoshin Minami I Theory of the turning point 4 II TP experiences from historical perspective 6 III Contents of this volume 7 References 13 Part I Lewisian Turning Point in Asian Countries 2 Turning Point in Japan: Structural Change in the Labor Market and Significance 17 Ryoshin Minami I Methodology for finding the turning point 18 II Real wages and wage differentials 20 III Relation between wages and labor productivity in agriculture 24 IV Factors and consequences of passing the turning point 31 V Conclusions 37 References 40 3 Structural Change of the Labor Market and the Turning Point in South Korea 42 Chang Nam Kim I Employment absorption and agricultural workforce 43 II Manufacturing real wages and labor supply elasticity 45 III Marginal labor productivity of agriculture 48 v

vi Contents IV Income distribution 51 V Conclusions 55 References 57 4 Agricultural Surplus Labor and Poverty in Indonesia 58 Susumu Hondai and Kazutoshi Nakamura I Wage rates in agriculture 59 II Labor productivity and real wages 63 III Changes in rural economy 69 IV Summary and some issues to be investigated 73 References 75 5 Labor Market and the Lewisian Turning Point in China 76 Ryoshin Minami and Xinxin Ma I Recent changes in the labor market 77 II Agricultural production function and surplus labor 81 III Outflow of agricultural labor and rural industrial employment 88 IV Concluding summary and prospect 90 References 98 Part II Structural Change of the Labor Market in China: Facts and Factors 6 Demographic Transition and Regional Employment 103 Fang Cai, Meiyan Wang and Yue Qu I Demographic change and the Lewisian turning point 103 II Impact of demographic transition on labor market 106 III Where will the labor-intensive industries go? 109 IV Demographic dividend in Inland 112 V Concluding remarks 116 References 118 7 Regional Migration and Structural Change in the Labor Market 119 Makoto Takada and Xu Li I Composition of migration 120 II Migration in Sichuan and Guangdong 127 III Conclusions 133 References 135 8 Foreign Direct Investment and Employment 136 Jin Du and Hiromi Ishizuka I Foreign investment in China 137

Contents vii II Framework and working hypothesis 142 III Quantitative analysis and results 145 IV Conclusions 152 References 153 9 Labor Market Transformation in Shanghai 155 Shanping Yan I Literature review and Shanghai employment surveys 156 II Outlook of the labor market 159 III Econometric analysis on labor segmentation 164 IV Conclusions 176 References 178 10 Labor Migration and Urban-Rural Income Disparity 181 Jinjun Xue and Wenshu Gao I The issues of income data and income statistics 182 II Rural migration and impact on income 184 III Model for estimating the urban-rural income gap 188 IV Re-estimating the urban-rural income gap 191 V Conclusions 193 References 195 Part III Summary and Conclusions 11 China s Turning Point from an East Asian Perspective: Prospective Recapitulation 199 Ryoshin Minami, Kwan S. Kim and Fumio Makino I Turning point in the East Asian context 199 II Consequences of the turning point 206 III Turning point and prospective outlook 210 References 213 Index 215

List of Figures 2.1 Long-term changes in the real wages of agriculture and manufacturing industries 21 2.2 Wage ratio of agriculture to manufacturing 22 2.3 Relation between the number of non-primary sector workers who originally came from primary sector and real wages of annual contract workers in agriculture 24 2.4 Long-term changes in the relative income share of labor 34 2.5 Long-term changes in income distribution (Gini coefficient) 34 3.1 Changes in the number of farm population and its net outflow 45 3.2 The relationship between net outflow of farm population and real wages in manufacturing industry 47 3.3 Changes in the marginal productivity of labor and real wages in agriculture (Unit: Won per day) 49 3.4 Changes in the relative income share of labor 52 3.5 Changes in the Gini coefficient 53 4.1 Current agricultural wage rates in selected provinces 61 4.2 Real agricultural wage rates in selected provinces 62 4.3 Rural unemployment rates in selected provinces 71 4.4 Percentages of households below the poverty lines 72 5.1 Level of living in rural households, wages of rural industries and wages of migrant workers 78 5.2 Ratio of wages of rural industries to wages of urban industries 79 5.3 Ratio of wages of migrant workers to staff and workers in urban iindustries: manufacturing industries 80 5.4 Relative income share of labor in manufacturing enterprises by the types of ownership 83 5.5 Comparison of the production elasticity of labor among various estimates 83 6.1 Fertility rate in rural and urban China 105 6.2 Working age population in rural and urban China 106 6.3 Growth rate of wages in selected sectors 108 6.4 Wages, profits, and total costs 110 6.5 Labor costs and rate of return by region 113 viii

List of Figures ix 6.6 Demographic disparities by region 114 7.1 Age distribution of migrant labour to Sichuan and Guangdong provinces, 2000 128 7.2 Educational level of migrant labour to Sichuan and Guangdong provinces, 2000 129 7.3 Comparison of age distribution of female labor in Sichuan province (all Industries, 21 50 years old) 130 7.4 Comparison of age distribution of female labor in Sichuan province (wholesale and retail trade, catering services, 21 50 years old) 131 7.5 Wage difference between Sichuan and Guangdong (collective enterprises) 132 8.1 Employment share by enterprise ownership groups, 1998 2007 140 8.2 Exports by enterprise ownership groups, 2000 2010 148 9.1 The relationship between frequency of occupational mobility and earnings 163 9.2 The relationship between age, educational attainment and monthly earnings 167 9.3 The relationship between education attainment and monthly earnings (in Shanghai) 175 11.1 International comparison of per capita real GDP and turning point 200 11.2 International comparison of the ratio of primary industry in employment 201 11.3 International comparison of the primary industry employment 203 11.4 International comparison of arable land area per primary employment 203 11.5 Changes in Gini coefficient before and after the Lewisian turning point 207

List of Tables 2.1 Estimates of agricultural production functions in the prewar period 25 2.2 Estimates of agricultural production functions in the postwar period 27 2.3 Comparison between labor productivity and real wages and estimation of surplus labor in primary industry 28 2.4 Relationship between productivity of labor and wages in primary industry for the postwar period (coefficient of determination) 30 2.5 Factors for the changes in the number of labor force in primary industry 32 3.1 Growth rates of economy and employment and labor elasticity 44 3.2 Estimation of the elasticity of labor supply 47 3.3 Comparison of marginal productivity and the real wages of agricultural labor 51 4.1 Test of production function estimation using Bali data to formalize a functional form 65 4.2 Estimation of production function using the 2003 survey data 66 4.3 Estimation of production function using the 2008 survey data 67 4.4 Marginal productivity of labor and daily wages paid to labor 70 5.1 Estimation of agricultural production function 84 5.2 Comparison of marginal productivity of labor and wages in agriculture 86 5.3 Estimation of surplus labor in primary industry 87 5.4 Factors for the changes in labor force of primary industry 89 6.1 Changes in demand for and supply of labor force 107 6.2 Labor demand in manufacturing 108 6.3 Ratios of labor cost to total cost/profit by region 111 7.1 The number of migration in census 122 7.2 Estimates of inter-provincial migration function, 2005 126 x

List of Tables xi 8.1 Changing structure of Chinese labor market, 1990 2009 139 8.2 FIEs managerial performance, 1998 2009 141 8.3 Employment share by ownership, 1998 2007 147 8.4 Total factor productivity, 1998 2007 150 8.5 Regression results on industrial employment 151 9.1 Sample distribution of the two surveys in Shanghai 159 9.2 Attributes, employment and mobility in the community samples 169 9.3 Earning functions of migrants and residents in Shanghai (OLS regression) 172 9.4 Relative returns to education (junior high school as benchmark) 174 10.1 The distribution of the urban record-keeping households 184 10.2 Proportion of migrants in total urban population 187 10.3 The Missing Income of the migrant members of rural families 189 10.4 Estimation of the urban-rural income gap in the surveyed regions 192 11.1 Turning point in East Asia 200 11.2 International comparison of agriculture: productivity and factor ratios 204

Preface While China has continued rapid economic growth since the end of the 1970s, its market economy system has not yet been fully developed. Institutional obstacles have been restricting outflow of the country s rural surplus labor to urban industries in the face of growing labor demand. For instance, the household registration system ( hukou ) introduced in 1958 to protect the urban economy has had restraining effects on rural-urban labor movements. Another obstacle is the collective land ownership system, which restricts free land transactions. A farmer has to give up his/her land when all members of the farm household wish to migrate. Labor migration from rural communities would cost households exorbitantly. For the neighboring countries of Japan, Taiwan, and South Korea, the rapid growth in the postwar era caused their rural surplus labor to diminish through sustained employment absorption by urban industries. Consequently, agricultural labor productivity began to increase rapidly and exceed the subsistence income level. On passing the Lewisian turning point, a point in time when surplus labor completely disappears, the real wage for both agricultural and unskilled workers in urban industries rose, at the same time narrowing the income gap between unskilled and skilled workers as well as between rural and urban workers. This dynamic evolution in labor markets improves a country s income distribution, supporting the Kuznets inverse U-shape hypothesis. At the beginning of this century, China started to see increasing scarcity of rural migrant workers in the cities, particularly along the coastal regions, as their urban wages rise. This event, referred to as mingong huang (shortage of migrant workers), has caused a controversy among economists over the question of whether or not China has passed its Lewisian turning point. To address this issue, we initiated in 2009 a joint study concerning the historical evolution in China s labor market. With support from the Asian Cultures Research Institute of Toyo University in Tokyo, international conferences were held in July 2010 and December 2012, inviting scholars from China, Taiwan and South Korea. This volume is a collection of selected papers from the conferences. The papers, in large part, analyze the historical and prospective processes of China s labor market and conclude that China has not yet passed the turning point in the context of the existence of rural surplus labor xii

Preface xiii and of continuing labor shortages in urban industries. Our findings that income distribution in China has worsened due to the existence of surplus labor and the absence of institutional reforms, has a significant political implication, as it could lead to social and political instability. Finally, the authors greatly appreciate Palgrave Macmillan s interest in our work, and also thank Ania Wronski for help with the production of the book. Prior to the publication of this volume, versions in Japanese (edited by Minami, Makino and Renping Hao), Korean (Minami and Chang-Nam Kim), and Chinese (Minami, Makino, and Hao) were published by Toyo Keizai Shinposha in Tokyo, Sigma Press in Seoul, and Social Sciences Academic Press in Beijing, respectively. We would like to express our gratitude to Palgrave Macmillan and to these three publishers for their interest in our work. Ryoshin Minami, Fumio Makino and Kwan S. Kim November 2013

List of Contributors Editors Kwan S. Kim is Professor Emeritus, Notre Dame University, USA. Fumio Makino is Dean and Professor, Faculty of Economics, Hosei University, Japan. Ryoshin Minami is Professor Emeritus, Hitotsubashi University, Japan. Contributors Fang Cai is Professor and Director, Institute of Population and Labor Economics, Chinese Academy of Social Sciences, China. Jin Du is Professor, Faculty of International Studies, Takushoku University, Japan. Wenshu Gao is Associate Professor, Institute of Population and Labor Economics, Chinese Academy of Social Sciences, China. Susumu Hondai is Professor Emeritus, Kobe University, Japan. Hiromi Ishizuka is Professor, Sanno University, Japan. Xu Li is Lecturer, Meiji University, Japan. Chang Nam Kim is Professor Emeritus, Dong-A University, South Korea Xinxin Ma is Senior Lecturer, Graduate School of Pharmaceutical Sciences, Kyoto University, Japan. Kazutoshi Nakamura is Associate Professor, Faculty of Economics, University of Nagasaki, Japan. Yue Qu is Associate Professor, Institute of Population and Labor Economics, Chinese Academy of Social Sciences, China. Makoto Takada is Associate Professor, Faculty of Languages and Cultures, Meikai University, Japan. Meiyan Wang is Associate Professor, Institute of Population and Labor Economics, Chinese Academy of Social Sciences, China. Jinjun Xue is Professor, School of Economics, Nagoya University, Japan. Shanping Yan is Professor, Graduate School of Global Studies, Doshisha University, Japan. xiv