The Emergence of Labor Markets: The Conduit of China’s Modernization or the Suppliers of Its Sweatshops? Lecture 8 Purpose of Today ? Understand the process of the role of the rural economy in the modernization of an economy ? Consider the policies that are needed to move rural development forward ? Study China’s modernization: how well is it doing? policy successes? remaining problems? ? Are China’s labor markets the suppliers of the nation’s sweatshops? Role of Agriculture in Development (Johnston and Mellor, AER, 1961) ? Provide Inexpensive Food ? Provide Labor for Industry ? Provide Export Earnings ? Provide Other Commodities ? Provide Income ? Demand for Domestic Markets ? Maintain or Increase Rural Incomes ? Poverty Alleviation Strategy ? Labor markets –“conduit” of development … “winners” use labor markets ? Challenges of development: trade liberalization ? Need to understand nature of markets ? Dealing with those left behind (preparing them to leave / taking care of those left behind): ? Role of trade policy (none after liberalization) ? Role of technology (rising productivity) ? Role of land markets ? Summary of policies and lessons Labor Market in Rural China ? Research showed that rural income growth in 1990s was almost totally dependent on off- farm work; ? Major factor in poverty alleviation also found to be labor markets in 1990s; ? Create link between poor areas and the rest of the economy; ? Rising rural incomes throughout China depend on employment off the farm… More than just higher incomes... Labor markets can also help create necessary conditions for development: ? Population moves from rural to urban areas (as it has in every developed country) ? Shift from agriculture to industry Transformation Path Percent of Pop’n in Ag. Sector Income per Capita US and other OECD nations Ethiopia, Rwanda, etc. Transformation Path Percent of Pop’n in Ag. Sector Income per Capita China: with only about ≈30 percent of population in urban areas if it is successful in developing, it will necessarily move along this rural-urban transformation path Debate: China’s Rural Labor Markets ? One view: Labor markets will hinder long-run development ? Considerable “non-market” assignment (Meng, 1990; 1996) ? Many people search but do not find jobs (Benjamin and Brandt, 2000) ? Formidable rural and urban barriers (Mallee; Johnson, Yang) We are interested in how well China’s labor markets are doing. Debate: China’s Rural Labor Markets (cont.) ? Labor Markets are helping, not hindering, the development of China’s economy ? Large rise in participation is evidence ? Rise in rewards to human capital (Maurer- Fazio; Knight and Song; Zhao, 2002), but all urban studies… ? Barriers exist but do not impede movement very much (Kung; Lohmar, 1999) How we study labor markets? ? Update numbers on China’s off-farm labor market growth and participation; ? Decompose trends-by employment type, population group, e.g. gender and age groups; ? Examine rates of return to education in labor markets ? [Implications of off-farm employment on rural development and agricultural production, paying particular attention to gender implications (“good” labor markets should not discriminate). ] Data ? Collected in a nearly nationally representative sample of households in late 2000 ? 6 provinces - 1 in each of China’s “major zones” ? Hebei, Shaanxi, Liaoning, Zhejiang, Sichuan, Hubei ? 5 counties per province-- one randomly selected from each income quintile ? 2 townships per county, 1 village randomly selected within each ? 20 households randomly selected in each Employment History ? In half the households, asked a 20 year employment history of all adults and children of the household head ? Whether employed off-farm or not ? If so… ? Location and whether lived at home ? Self-employed or not ? Level of involvement in farming Overall Increase in Off-farm Work 0% 20% 40% 60% 80% 100% 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Ye ar off-farm busy season part time farm only Percent of Workforce Off-farm, by Age Range Age Range 1990 2000 16-20 23.7 75.8 21-25 33.6 67.2 26-30 28.8 52.5 31-35 26.9 47.6 36-40 20.5 43.3 41-50 20.8 37.6 Comparison of Off-farm work, by age range Workers Aged 16-20 0% 20% 40% 60% 80% 100% 19 91 19 92 1 99 3 1 99 4 19 95 19 96 1 99 7 1 99 8 19 99 20 00 Ye ar Workers Aged 41-50 0% 20% 40% 60% 80% 100% 1 99 1 1 99 2 1 99 3 19 94 19 95 19 96 19 97 1 99 8 1 99 9 2 00 0 Ye ar Change in Type of Off-Farm Work 0% 4% 8% 12% 16% 20% 1 98 1 1 9 82 1 9 83 1 98 4 1 9 85 1 9 86 1 98 7 1 9 88 1 9 89 1 99 0 1 9 91 1 99 2 1 99 3 1 9 94 1 99 5 1 99 6 1 9 97 1 99 8 1 99 9 2 0 00 Ye ar P e r c e n t of Total Wor k for c e migrants self-emp. migrants self-employed village wage earners Migration Summary: how good are labor markets ? More movement (larger numbers) ? Younger ? More educated ? Specialized (longer term) ? More migration ? Returns to Education? Educational Attainment and Return to Schooling 4 5 6 7 8 9 10 11 12 13 14 45678910112 Africa Latin America Asia MidEast Rural China OECD Years of education Rate of return (%) Other results on rising return to labor in rural China overtime Year Returns (%) ? 1988 0 (insignificant) ? 1992 4 (significant-10%) ? 1996 9 (highly significant) ? 2000 11 (rural migrants) Zhang, Huang and Rozelle, 2001, JCE Panel data of 113 hhds in Jiangsu (collected by authors) Educational Attainment and Return to Schooling 4 5 6 7 8 9 10 11 12 13 14 45678910112 Africa Latin America Asia MidEast Rural China OECD Years of education Rate of return (%) Rural China--2000 Summary: Descriptive Findings ? Rapid Off-farm Employment Growth-- even in the late 90s ? Change is consistent with: ? a transition from agriculture to non-ag. ? Percentage of workforce fully employed in agriculture decreasing ? Trends really clear among young workers ? Shift from rural to urban workforce started ? Migration has become dominant form of off-farm work Multivariate analysis: Determinants of off-farm employment Conditional Fixed Effects Logit, 1981-2000. Dependent Variable Explanatory Variables Migration Local W age Employment Self-Em ploym ent (1) (2) (3) (4) (5) (6) Age 0.93 (31.26)** 0.93 (31.31)** 0.94 (29.36)** 0.94 (29.43)** 0.99 (4.50)** 0.99 (4.47)** Gender (1=male) 3.80 (27.67)** 3.81 (27.68)** 2.07 (16.34)** 2.07 (16.35)** 3.29 (24.70)** 3.29 (24.71)** Years of Education 1.16 (19.39)** 1.16 (19.34)** 1.16 (19.79)** 1.16 (19.77)** 1.00 (0.09) 1.00 (0.10) Skill Training 1.73 (11.53)** 1.74 (11.60)** 1.81 (12.69)** 1.82 (12.78)** 2.87 (22.26)** 2.86 (22.20)** Average HH Experience 1.17 (18.18)** 1.17 (17.99)** 1.26 (27.18)** 1.26 (27.03)** 1.34 (34.47)** 1.34 (34.53)** Size of HH Labor Force 1.26 (19.67)** 1.27 (19.72)** 1.28 (20.91)** 1.28 (20.99)** 0.94 (4.73)** 0.94 (4.72)** Total Land Area, 2000 0.99 (3.69)** 0.99 (3.74)** 0.99 (3.27)** 0.99 (3.36)** 1.00 (0.63) 1.00 (0.61) Value of durables, 2000 1.00 (2.69)** 1.00 (2.69)** 1.00 (4.40)** 1.00 (4.41)** 1.00 (0.65) 1.00 (0.63) Time Trend 1.07 (13.56)** 1.03 (6.31)** 1.00 (0.87) Year Dummies: included included included Conditional Logit Results: 1981-2000 Explanatory De pendent Va riable Var iables Migrant Local La borer Age 0.93 (31.26)** 0.94 (29.36)** Ge n der (1=ma le) 3.80 (27.67)** 2.07 (16.34)** Year s o f E duca tio n 1.16 (19.39)** 1.81 (12.29)** A v erage HH Experience 1.17 (18.18)** 1.26 (27.03)** Conditional Logit Results: by time Explanator y De pen den t Va riab le Var ia bl e s M ig ra n t 1981-1990 Migrant 1991-2000 Age 0.94 (13.43)* * 0.92 (30.26)* * Ge n der (1=ma le) 12.87 (20.58)* * 3.23 (21.76)* * Year s o f E d uca tio n 1.06 (5.55) ** 1.17 (17.35)* * A v erage HH E x pe ri ence 1.64 (27.84)* * 1.16 (15.77)* * No tes: Co effi c ien ts are repo rt ed as odds ra ti o s . A sym p tot ic Z s tat isti cs i n pa ren the si s. So me coe ffi c ien tsnot repo rted. Summary: Multivariate Findings ? Consistent with descriptive findings ? Younger workers more likely to be off-farm ? Women becoming increasingly able to work off-farm ? Also consistent with story that human capital is becoming more important ? More educated workers, workers with specialized training more likely to be off- farm Policies ? Three major policies: ? Human capital ? Human capital ? Human capital Why? In most developing countries, the most abundant resource of rural residents is labor … need to improve its value. Rural Labour Market Development and Gender Implications Debate: China’s Rural Labor Markets and Gender Implications ? One view: Labor markets will have adverse consequences on certain aspects of development, in particular, agricultural feminization; ? Other view: Labor Markets are providing lots of opportunities for women and the adverse consequences (in terms of agricultural feminization) are absent or minor. Increase Among Women 0% 20% 40% 60% 80% 100% 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Ye ar P e rcen t o f w o rk f o rc e off-farm busy season part time farm only Percent of Workforce Off-farm, by Age Range and Gender, 1990-2000 Age 1990 2000 Range M F M F 16-20 21.4 13.1 74.5 75.6 21-25 47.3 13.1 78.8 53.5 26-30 47.9 8.8 72.8 33.7 31-35 44.4 6.8 70.5 22.5 36-40 37.3 3.6 70.0 20.3 41-50 33.3 5.2 61.2 18.7 Evidence of Ag. Feminization Percent of Workforce Off-farm, by Age Range and Gender, rich areas Age 1990 2000 Range M F M F 16-20 41.2 27.9 89.3 86.2 21-25 66.7 26.9 93.2 72.2 26-30 66.7 21.1 85.1 37.9 31-35 63.9 14.9 86.0 30.4 36-40 53.5 5.4 86.0 34.2 41-50 45.8 12.5 77.5 33.3 Percent of Workforce Off-farm, by Age Range and Gender, poor areas Age 1990 2000 Range M F M F 16-20 15.8 8.8 68.3 69.8 21-25 39.6 5.4 70.3 40.4 26-30 38.0 4.1 67.3 31.7 31-35 35.8 2.3 64.1 17.1 36-40 26.9 2.7 61.0 14.4 41-50 26.9 2.4 52.1 10.3 Comparison of Off-farm work, by gender (aged 16-20) 0% 20% 40% 60% 80% 100% 198 1 198 2 198 3 19 8 4 198 5 198 6 198 7 198 8 198 9 199 0 199 1 199 2 199 3 199 4 199 5 199 6 199 7 199 8 199 9 200 0 Ye a r Off-farm Seasonal Part-Time Farm only 0% 20% 40% 60% 80% 100% 1 98 1 198 2 198 3 1 98 4 198 5 198 6 198 7 19 8 8 198 9 199 0 199 1 1 99 2 199 3 199 4 1 99 5 199 6 199 7 1 99 8 199 9 200 0 Ye a r Off-farm Seasonal Part-Time Farm only Male Female Conditional Logit Results: by time Explanator y De pen den t Va riab le Var ia bl e s M ig ra n t 1981-1990 Migrant 1991-2000 Age 0.94 (13.43)* * 0.92 (30.26)* * Ge n der (1=ma le) 12.87 (20.58)* * 3.23 (21.76)* * Year s o f E d uca tio n 1.06 (5.55) ** 1.17 (17.35)* * A v erage HH E x pe ri ence 1.64 (27.84)* * 1.16 (15.77)* * No tes: Co effi c ien ts are repo rt ed as odds ra ti o s . A sym p tot ic Z s tat isti cs i n pa ren the si s. So me coe ffi c ien tsnot repo rted. Summary of Findings ? There is a significant gender difference, but women are catching up among certain age groups and regions: ? 16-20 age group off-farm participation: ? 1990: 21% (men) vs. 13% (women) ? 2000: 75% (men) vs. 76% (women) ? 16-20 age group women’s off-farm employment in rich and poor areas: ? 1990: 28% (rich) vs. 9% (poor) ? 2000: 86% (rich) vs. 70% (poor) Conclusions-1 ? Trends in rural labor force in China are consistent with a healthy development path ? Further policy change can help or hinder movement… ? Urban policies (building towns, loosening restrictions on movement) ? Rural policies (strengthening education and poverty policies) Conclusions-2 ? Emerging labour markets are creating new opportunities for women to gain access to off farm employment … in fact, by some metrics, they have almost caught up … ? BUT: is this the whole story? ? Why are so many people worried about poor working conditions / sweat shops?