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August 2002, Vol. 125, No. 8

Employment restructuring during China’s economic transition

Ming Lu, Jianyong Fan, Shejian Liu, and Yan Yan

During the 1980s and 1990s, China underwent considerable employment restructuring as a result of economic development and institutional reform. In particular, employment growth was rapid in the country’s secondary and tertiary industries. The private sector became the main job creator, while employment in the State sector shrank. Before the restructuring, China already had shared some features with Western economies. For example, the Chinese labor force is reasonably well educated, women’s share of the labor force rose with the growth of the tertiary industry, and the average age of the labor force is increasing. This article examines the causes and consequences of employment restructuring in China and its relation to economic and social development.

Although China has a large population, employment managed to increase by an average rate of 2.63 percent each year during the last two decades. Certainly, this high growth in employment should be attributed chiefly to the country’s rapid economic growth during reform. At the same time, the Government still forbade the free dismissal of redundant labor in State-owned enterprises. Accordingly, employment growth in the booming private sector was partly cancelled by the effects of labor separation in those enterprises.

Chart 1 shows the transformation of the Chinese economy from 1978 to 2000 from an economy dominated by primary industries to one in which secondary and tertiary industries now make up half of employment.¹ The employment share of primary industries dropped radically, from almost 71 percent in 1978 to 50 percent in 2000. Over the same period, the employment share of secondary industries climbed from just over 17 percent to almost 23 percent, and that of tertiary industries rose from slightly more than 12 percent to almost 28 percent. The increases are attributable to industrialization, as well as the ongoing changeover from a State-dominated economy to one in which private industry plays an ever-increasing role. The tertiary industries averaged about 6.5-percent growth each year, while the primary and secondary industries posted 1-percent and 4-percent growth, respectively.²

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Footnotes

1 Primary industries include forestry, animal husbandry, and fishing; mining and quarrying, manufacturing, and construction are classified as secondary industries; and banking and insurance, wholesale and retail trade and catering services, and social services are considered tertiary industries.

2 The employment growth figures presented are the authors’ calculations, based on employment data from China Statistical Yearbook, 2000 (Beijing, China Statistical Publishing House, 2000).

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