Chinese Labor Market

Transition of the Chinese labor market. Breaking the Iron Rice Bowl. Consequences for a Labor Force in transition. Labor market reform. Post-Wage Grid Wage determination, government control. Marketization Process. Evaluating China’s industrial relations.
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PLEKHANOV RUSSIAN UNIVERSITY OF ECONOMICS

INTERNATIONAL BUSINESS SCHOOL

COURSEWORK IN LABOR ECONOMICS

Chinese Labor Market

Student: Goremykina Polina

Group № 5302

Supervisor: Razumova T. O.

Moscow 2012



Table of contents

• 1. Introduction
• 2. Transition of the Chinese labor market
• 2.1 Breaking the Iron Rice Bowl
• 2.2 Consequences for a Labor Force in Transition
• 3. Labor market reform
• 3.1 Post-Wage Grid Wage Determination
• 3.1.1 Flexible Labor Market
• 3.1.2 Government Control
• 3.1.3 Collective Bargaining
• 3.2 Marketization Process
• 4. Trade unions in a transforming labor market
• 4.1 Organizational Structure and Function
• 4.2 Role of Grass-root Trade Unions
• 4.3 Distinguishing Collective Contracts and Wage Bargaining
• 4.4 Independent Unions
• 4.5 NGO and Foreign Influences on Labor Relations

4.6 Are there “Real” Chinese Trade Unions?

5. Evaluating China's industrial relations

6. Wages in China

• 7. The program of attraction of foreign experts in China

7.1 Chinese experience of attraction of foreign experts

Bibliography



1. Introduction

China's labor market has undergone significant changes in the past twenty years. A more market- oriented labor market has emerged with the growing importance of the urban private sector, as state-owned enterprises (SOEs) have downsized. At the same time, rural employment growth has slowed, and migrants have sought jobs in the more dynamic coastal provinces. Despite the progress on reforms, a sizable surplus of labor still exists in the rural sector (about 150 million) and SOEs (about 10-11 million).

The main challenge facing China's labor market in coming years is to absorb the surplus labor into quality jobs while adjusting to World Trade Organization (WTO) accession. This paper estimates that if GDP growth averages 7 percent and the employment elasticity is one-half (in line with historical experience), the unemployment rate could nonetheless double over the next three to four years to about 10 percent, before declining as SOE reform is completed. These pressures would be limited by stronger economic growth, especially in the private sector and the more labor-intensive service industries, which have generated the most jobs in recent years.

The paper first discusses trends in the Chinese labor market before outlining the progress on reforms. It then presents an analysis of the medium-term outlook for employment and unemployment, and draws some policy conclusions.

Chinese industrial relations have significantly changed from governmental paternalism to a more market oriented system for large portions of the labor force. Previous labor market institutions have either been transformed or abolished while new ones have been slow to develop. The current institutional design suggests that the labor market is not functioning in an optimal manner nor is there a clearly outlined development strategy. It remains an open question if the post-reform institutional design sets the conditions for a competitive labor market. The other question is if a competitive and fully flexible labor market is suitable for China and how the government can influence these developments. In the past and to this day China has often been associated with poor labor conditions and low wages. This constellation may be connected to the rapid economic growth but is also associated with increasing discontent and inequality, which has equally been on the rise as present labor market institutions have been struggling to create social stability. In this current environment of change trade unions have been trying to find their place in Chinese industrial relations. Recently the government has been paying more attention to the potential role trade unions could play in the Chinese labor market. Even so, under the current framework they face considerable constraints in representing workers' interest.

The aim of this paper is to provide insight to recent developments on the Chinese labor market and the role of unions. Current literature provides various snapshots of the Chinese labor market, but comprehensive research is still very limited. As a first step to a more comprehensive understanding, this paper, as part of ongoing research, will attempt to provide insight to central aspects pertaining to labor market developments and trade unions. First, this paper will provide an overview of the transition of the Chinese labor market and its tilt toward a market based economy while highlighting some consequences for the labor force. In the second part the paper will focus on the marketization of the labor market since initial reform, specifically looking at current wage determination mechanisms while emphasizing Chinese industrial relations. In the third part attention will turn to how Chinese trade unions are functioning, focusing on opportunities and constraints they face under the current labor market conditions while also briefly taking external influences and independent unions into consideration. Finally, this paper will conclude by providing an evaluation of the emerging Chinese labor market conditions.



2. Transition of the Chinese labor market

2.1 Breaking the Iron Rice Bowl

During the process of shifting from a planned economy to a market based one the government significantly reformed the labor market, gradually dismantling the government-controlled system to form a more competitive market. According to Fleisher and Yang (2003) “labor market reform has been both the source and a major limitation - perhaps the major limitation of China's economic transition”. Prior to 1978 the organization of labor was centered on the work unit (danwei), which was at the core of the Chinese iron rice bowl. Under this concept workers would be assigned to a work unit functioning as a sort of community within the society (xiao she hui), providing its workers and their families with a wide range of social benefits. Generally, these benefits included lifelong employment, low wages in accordance to the centralized wage grid system, and additional benefits such has housing, schooling, and health care. This system detached wages and employment from company performance, establishing nearly complete security (Saha, 2006). Such extensive welfare, however, was only granted to members of the danwei, and variations between different enterprises were notable. The system did not exempt workers from all kind of hardship (e.g. during the Great Leap Forward), but for the most provided basic care for its members. Additionally, the rural population did not have access to such industrial welfare provisions, having their basic needs provided through rural people's communes instead (Shen, 2007). The basic concept between the urban and rural forms of organization is similar in nature while differing in quality. Because of this it is common to use the term danwei for urban as well as rural areas in current literature; the same will be done in this paper.



The state played a significant part in the welfare system undermining any type of flexible markets using government paternalism to shield the working population by guaranteeing social welfare and at the same time limiting widespread inequality. Under the socialist economic regime the majority of China's labor force was employed either in rural communes or in urban state-owned enterprises (SOE), but the distribution of jobs has significantly changed since (Fleisher and Yang, 2003). As the Chinese government continued its marketization efforts of the Chinese economy, benefits provided for by the danwei have gradually disappeared. In the process of marketization private enterprises have become increasingly important for employment, while at the same time government controlled enterprises have laid-off workers and significantly reduced their social benefits. Some segments of the labor force were able to benefit from this transformation, while others struggle to deal with the increased social risks (see section 3). The changing composition is illustrated in Table 1. Various forms of private ownership types are crucial in job creation enabling the government to reduce employment in the state-owned sector.

Initial reforms limited exposure to market mechanisms, but continuous privatization efforts reforms began to specifically target the labor market affecting a higher proportion of the labor force. Labor market reforms entered the most radical phase in the 1990s when the government significantly downsized the public sector, putting an end to “cradle-to-grave” socialism and lifetime employment (Dong, 2004).

Please note that employment data by enterprise type are based on the annual population sample survey. As a result, the sum of the data by ownership and by sector is not equal to the total.

Downsizing of the state sector is reflected in Figure 1, as the proportion of employees in state enterprises rapidly decreased in the early 1990s whereas it remained relativ...