* In writing this paper, I own special thanks to the British Academy K C Wong Fellowships who sponsor me as a fellow to complete my research on this subject in UK during November 1997 and May 1998. I am also indebted to the School of Oriental and African Studies, University of London who acts as my host generously facilitating me with its excellent library and other necessities. The British Library of Political and Economic Science also kindly offer me access to its precious collections. I am very appreciative to my supervisor Prof. David Wall at the Department of Economics, SOAS. The research would not have been undertaken without his friendly help and valuable suggestions. I am also grateful to Prof. Ben Fine and Dr. Dic Lo at SOAS, Prof. John Knight and Dr. Lina Song at Oxford University, who provide helpful suggestions to the formation of my approach.
1. INTRODUCTION
In the extention of Chinese market-oriented economic reform from non-state-owned sectors to the state-owned sector, the problem of unemployment and the need to treat it has been appearing in China since the early 1990s. In view of the problem getting more and more serious the government as well as the economists have paid much attentions to it and put forward some relevant analyses and countermeasures.
Economists generally regarded four facts as the causes of unemployment in China. They are (i)fast growth of the population at working age due to the past shortage of family planning all over the country. The new entrants to labour force in the 1990s were born in around the mid-1970s when the birth rates were about 3.5%. The 1.5 percentage points higher than about 2.0% of the birth rates later gave rise to 3.5-5.0 million of population at working age today more than otherwise(Wang, 1997a); (ii)agriculture sector releasing a large amount of floating population due to the delayed transition of economic duality into a modern industrial economy. Because the flow of rural labour mobility was discontinued by a dis-industrialization policy of worker mobility in around 1960 resulting in the averse change of the employment proportions in the three industries from 84:7:9 in the beginning of 1950s, 60:23:17 at the end of 1950s to 82:8:10 in 1963, and another policy called ssigning youths rusticated”(shangshan-xiaxiang) actually treated agricultural production as being capable of holding unlimited labour force and one of its results was about 15 million of school leavers assigned into countryside during the decade begun from 1967, the problem of surplus labour in traditional sector was more serious at the start stage of economic reform than any other developing countries(Wang, 1997b); (iii)old state-owned enterprises facing loss and liquidating without capabilities to hold a large scale of disguised unemployed, and new state-owned enterprises leaders tending to unload the burden of redundant workers to the society due to their pursuance to profitability; (iv)big changes in the industrial structure led to a great loss of jobs due to the immense change of market demand structure. In investment demand, a large number of old large enterprises of capital goods production found its more and more difficult to bid for orders because clients changed their demand for new facilities(e.g. power engines and printing machines). In consumption demand, most of the traditional goods were upgraded or replaced by new goods(e.g. TV sets and garments) and such goods producers were losing their share in market(Dai and Song, 1997).
In the mean time the government held a comprehensive employment policy called a e-employment project’ aiming to reduce the unemployment rate by offering necessary job vacancy information, financial support and administrative assistance to the jobless or the would-be-jobless.
Although there has been some effect of the employment policy on reduction of unemployment, especially comparitive to without such a policy at the early stage, the re-employment rate was still quite low--about 10%(Yue, 1998) and the unemployment rate kept rising--2.3% in 1992, 2.6% in 1993, 2.8% in 1994, 2.9 in 1995, 3.0 in 1996, and 3.1 in 1997(CSSB, each year). The purpose of this paper is to find the uniqueness of the unemployment problems in China by the attempts to define a more suitable and accurate concept of unemployment in China, to configure more clearly the situations of unemployment, to explore the special institutional framework underlying Chinese employment system or labour market, and to locate the imperfections of related social and economic systems in dealing with unemployment as a kind of market matter.
2. DEFINITION OF UNEMPLOYMENT UNDER TRANSFORMATION OF JOBS
2.1 Definitions of unemployment in developed economies
In economics, unemployment and its measurement studies are mainly intended to identify the unused but available labour resources, and to find their reasons and the ways to reuse them. So the basic definition of unemployment in economics is he state of being part of a labour force, wanting to work but without a job”(Rutherford, 1995). The measurement of unemployment is done in two aspects: a registrant count of the unemployment benefit claimants( an unemployment rate on registration), and a regular survey measure of unemployment( an unemployment rate on survey).
One person as an unemployed is supposed to have five critical characteristics: (i)claiming benefit as unemployed, (ii) seeking work, (iii)wanting a job, (iv)being available for work, and (v) not working(Johnson and Briscoe, 1995); though in some countries as in US the emphases are put on (ii), (iv) and (v).
According to the acceptance to a prevailing level of wage, unemployment can be divided into voluntary unemployment and involuntary unemployment. According to the change and operation of an economy, unemployment can be divided into frictional unemployment, structural unemployment and cyclical unemployment. According to the capability of labour utilization unemployment can be divided into underemployment, hidden unemployment and open unemployment.
2.2 Unemployment phenomena in China: from none to being
There was almost no unemployment phenomenon in China for nearly three decades since the second half of the 1950s. In the central planning economy, two special properties concerning directly to unemployment problems. In theory, firstly, jobless was regarded as a kind of exploitation to rest of the society. Since physical labour work was thought to be the unique source to the social wealth and any labour or work conducted under current conditions could be a contribution to the wealth, each social member must do some amount of work(especially physical work) organized by a public establishment. Therefore jobs were looked matter and no jobs potentially a big loss to the society. Secondly in practice of the central planning economy, almost every aspect of a person was controlled or ared” by the goverment through every person抯 working unit. Unemployment meant some persons probably out of control of the government which could bring the society with disoder and unstability. After the central planning economy had sufferred from the unemployment rates as high as 26% in the early 1950s, its government announced in 1952 a historic policy of business regulation that ny enterprise of public or private ownership must not lay off its employees resulted from the productive reform and the reasonable promotion of its labour productivity. Instead the enterprises must contain its redundant employees and pay them wage earnings.”(Zhao, 1991) At the same time the government began to assign each year school leavers directly into working units through mandatory labour plans. Since then, unemployment as people being available to work but without a job was impossible to happen in China until about the beginning of 1980s with light unemployment and after 1992 with serious unemployment( strictly, open unemployment). Naturally there were then no concerns about how to treat or insure an unemployment, though no concerns yet about how to improve the employment efficiency of labour force and other resources.
The two properties mentioned above changed little because of the pattern of reform(in gradualism) in China until 1992 when a new wave of reform was led to an effect that large scale of state-owned and old collective-owned enterprises went bankrupt. With the decrease of the financially and politically controlling ability of the central government, and the new recognition of labour market with some degree of unemployment as a necessary part with a function as a resource reservoir in the new market system, more and more workers quit their original work(when try to find a better work in private sector) or were laid off from their jobs. Although the government tried to rescue the troublesome enterprises and their employees at first by moving the loss-making from enterprises to banks, but finally such effort-in-vain was gradually given up. As a result of this change unemployment appeared as a typical macroeconomic phenomenon in Chinese economy in recent years.
Since China was undertaking the transition from a planning economy to a market economy, from a dualistic economy to a modern economy, and from a closed economy to an open economy, Chinese unemployment showed a complicated nature and a variety of forms including not only the ones in developed countries and other developing countries but also certain new forms. In the mean time the society took it as a serious problem like previous inflation and seemed ready to tackle it at a very high cost.
2.3 A better definition of unemployment in China
Unemployment in China is the state that people undergo some sort of jobless and look for a job but are usually unavailable to a job.
The reasons that unemployed are not ready to or not able to get used include, (i)employment discrimination in gender, age, family background and area; (ii)majority of the unemployed are short of basic training for current work; and (iii)tremendous stickiness of worker mobility existing in between occupations, firms of different ownerships, industries, and geographical areas.
Should the unemployed of unavailable-to-jobs not be counted into the labour force the principal part of unemployment could be terribly neglected. In fact, unemployment in China has been relatively long in duration and serious in extent just because most of the unemployed cannot either be able to or be ready to get a offered job.
3. STOCK-FLOW MODEL OF UNEMPLOYMENT IN CHINA
3.1 A standard stock-flow model of unemployment
u = unemployment rate,
U = number of people unemployed,
L = number of people in the labour force,
E = number of people employed,
= fraction of employed who leave the labour force,
= fraction of those not in the labour force who enter the labour force and find employment,
= fraction of unemployed who leave the labour force,
= fraction of those not in the labour force who enter the labour force and become unemployed,
= fraction of employed who become unemployed,
= fraction of unemployed who become employed.
.
3.2 China stocks and flows in unemployment
In the past planned economy, all the persons qualified to work must stay in the labour force, and all the persons in the labour force must become employed. That means,
= retirement rate,
= increase rate of the working age people,
= = non-existence,
= = 0 ;
hence,
u = 0 .
Changes took place in employment in the first half of 1990s and unemployed both in stock and flow appeared more and more apparently in China. So all the variables took a different value.
= retirement rate + early retirement rate( the retired who are still required by the economy but are willing or compelled to quit their jobs in order to give place to their younger relatives),
= employed rate of new working age people + return rate of the early and normal retired,
= leaving rate of the unemployed (who live on self-owned assets, relative assistance, social benefits and /or household production),
= unemployed rates of new working age people, alien workers and returned lbour force leavers ( especially the returned household workers),
= unemployed rates of the old state and collective owned employees( majority of them aged 30 to 50), and the mobile labour force from rural to urban areas,
= success rate/degree of the reemployment projects and other development policies.
therefore,
> 0 .
4. MARKETIZATIONAL REFORM AND UNEMPLOYMENT TREATMENT
4.1 Market choice and unemployment existence
Market choice is different from the central planning choice. For the later all the private goods were produced, transacted, distributed and consumed under the arrangements of the central government. Individuals then were of scarcely a room to make their own choices. For the sake of convenience in operation and avoidance of shameful jobless state, the central government allotted each person one job usually fixed in one all life. However market choice let individuals become the agents to make a variety of economic decisions. Except for collective and public goods production and distribution, all the economic activities are actually conducted upon each individual will and therefore on his/her own responsibilities.
As a result of labour market choice, employment level does not necessarily keep at a complete employment level without a person unemployed --- as the central planned economy aimed to do.
Along with the rise of living standards and varieties of working conditions in a market economy, people are faced with incremental choices in their employment such as work or leisure, work out for wage or work home for convenience, work in full time or in part time, taking one job at a time or more than one jobs, and so on. Eventually there in a market economy exists certain level of unemployment. This unemployment rate depending on individual market choice is generally called atural rate of unemployment’ .
In developed countries the natural rate of unemployment tends to fluctuate gently and keeps in a relatively stable level in average. For example, economists estimated that the natural rate of unemployment in US was 5.4 percent in the 1960s, 7.0 percent in the 1970s, 6.0 to 6.5 percent in the 1980s, and 5.0 to 6.0 percent in first half of the 1990s(Bennett,1995; Ehrenberg and Smith, 1997).
The natural rate of unemployment is specifically determined by three factors. They are, (i)voluntary turnover rates among employed workers, (ii)voluntary movements in and out of the labour force, (iii)the length of time for unemployed to find acceptable jobs. All the factors include either oluntary’ or cceptable’ nature which reflect the essence of the market choice.
4.2 Unemployment insurance and other benefit
In industrialized countries not all the unemployed are qualified to claim for an unemployment benefit. In U.S., for example, among the four types of unemployment --- job leavers, job losers, new entrants and reentrants, only the normal job losers( excluding the ones with a malpractice to the employer) who have met certain level of labour market experience tests can eligibly file for unemployment insurance benefit(Ehrenberg and Smith, 1997, p572). As a result, the persons receiving unemployment benefits are only 31 percent of the total unemployed in 1988, and only 51 percent even with an increase in 1992(Reich and Abraham, 1995).
Unemployment benefit itself is in nature one part of the social security benefits or allowances aiming to maintain a basic or decent subsistence level of living for the social members without earnings and savings, rather than an incentive to productive work. Hence in modern western countries a variety of social benefits can be used to substitute the unemployment benefit in its role. If an unemployed was not a normal job loser and yet needed money to support himself or his family, he could always find financial support from either a poverty-line subsidy, a health benefit, a pension benefit, housing benefit, a child benefit, an injury benefit or disability benefit etc.
Unlike most of other social benefits unemployment benefit is of explicit negative effects on work incentive and enterprising innovation resulting from its relation to the claimants previous wage levels. So unemployment benefit has a stronger effect of discouraging work on more skilled workers and incurs larger burden on related enterprises providing enterprise contribution forms the major part of the benefit funding(Ehrenberg and Smith, 1997, pp572-6). Accordingly in order to minimize its negative effect and in the meantime to fulfil its positive role, we can attempt to replace unemployment insurance benefit with other benefit arrangements. This is especially a quite realizable replacement when an economy is just standing at the initial stage of constructing the social security system.
China has been involved in more and more problems of unemployment, one principal of them is how to subsist the lives of the unemployed. As a main attempting approach to solve the problem, unemployment insurance system was introduced into China in 1986, but a light of setting up the system successfully can not yet been seen and not even in the near future. The related difficulties include that, (i)the insurance funds cannot be built big enough to pay a minimal amount of insurance benefit to the unemployed due to the relative decline of the government revenue(for instance, the proportion of the expense on employment of the total financial budget was only less than 1% in 1992 compared to 7-9% of most other countries, see Yang et al, 1997, p224), the limited capacity of most of the employees to pay their insurance contribution( no formally compulsory personal contribution to the insurance to date), and the preference of the profitable enterprises to stay outside the insurance system; (ii)it has been found extremely difficult to set a proper standard of benefit payment due to its conflict to other social security schemes; (iii)the management of insurance funds has been at very high cost and involved with much disorder, and no decrease and alleviation of them can be expected because of the short-sighted interest orientation and unclear relationship of property-rights in the funds management; (iv)there is no clear cut between the unemployed and the hidden employed due to the abnormal recruitment and remuneration payment practices.
Beyond its original and principal aim of solving the subsistence problem for unemployed, the unemployment insurance funds have been used towards such targets: job training, establishment of the unemployed mandate centres, and giving rewards to the firms who have employed some jobless persons. Although those targets are quite significant in helping resolve unemployment problems, the way of using unemployment insurance funds against them is highly costly and risky because most of the unemployment benefits receivers are still found very hard to survive with such low level benefits. Instead a formal manpower policy with incentive compatible arrangements of the government financed by public budgets and natioal insurance fund cotributed compulsorily by individual workers, firms and governments will possibly be a far more effective and efficient measure to deal with the problem because special government sectors such as job centres and community centres will have the advantages of economy of scale and economy of scope in job training and job searching.
Therefore the effort in establishing unemployment insurance system in China should beneficially be replaced by the effort in building the poverty alleviation system and the hardship relief system. As for the problem of unemployment itself more job opportunities need to be created by enforcment of enterprise innovations in the market and more job skills and information need to be provided by a more powerful manpower policy.
4.3 Required adjustments in social institutions to contain unemployment
In order to treat unemployment in the way of market economic operations, some fundamental aspects of Chinese institutions need to be adjusted or changed into the more market compatible institutions. The relevant adjustments and changes include followings.
(i)Abolishing the discrimination against non-SoE employment in the constitution and bestowing all the employees in different ownership firms and different lines of business with a really equal political and social position. The employment growth rates in state-owned units were 2.1%, 0.3%, -0.3%, 0.4% and -0.4% in 1992 to 1996, and in urban collective-owned units were -0.2%, -6.3%, -5.4%, -4.2% and -4.0%, but in the units of other ownerships were totally 30.6%, 105.7%, 29.3%, 17.4% and 7.4%(CSSB&LM, 1997, p15). Obviously traditional public-ownership employment tended to decline and new non-public-ownership employment tended to expand. But there are serious institutional obstacles against unemployed leaving the public-owned enterprises and entering the non-public-owned enterprises. Just as the state-owned property is seen more valuable and higher grade in the society, many former state-owned firm workers regard their ormal state worker” as an unchangeble social status and reluctant to work in other ownership firms, especially the non-public-ownership firms.While one says these people concepts are out-of-date to modern market economy, should we explore its root to the present constitution and related laws which put non-public-ownership employment and other activities lower or lowest grade(s) in the society?
(ii)Adjustment in the government administration as to withdraw from direct intervention against micro agents decisions on employment and to enter the macro task of specialized implementation of manpower policy.
(iii)Change in the taxation system to lay stress on direct taxes instead of previous indirect taxes and to establish a income declaration system.
(iv)Minimization of the employment discrimination against rural and non-local workers in the employment policies of local governments so as to promote the mobility of labour resources all over the country.
(v)Encouraging the bearing of enterprising risk by reducing the firm entering threshold i.e. registration fees and assessment standards etc. and simplifying the administration of the industrial and commercial authorities.
(vi)Adjustment in industrial organization policy from focusing on the growth of large-scale enterprises with hi-tech facilities to on the dual development both in hi-tech enterprises to promote the economy international competitiveness and in labour intensive enterprises to promote employment.
5. CONCLUSION
Unemployment appears prevailing when the economic reform makes the disguised unemployment frozen under the planned economy start to melt. In order to treat unemployment successfully under a new market framework, China needs not only to adopt some routine measures used in developed and other developing countries to fight against unemployment, but also to make great alterations in legislation, ideology, social organizations and government economic policies.
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