Albert Park, University of Oxford, CEPR, and IZA Fang Cai and Yang Du, Chinese Academy of Social Sciences John Giles, Wo

1. Albert Park, University of Oxford, CEPR, and IZA Fang Cai and Yang Du, Chinese Academy of Social Sciences John Giles, World Bank and IZA Shock and Recovery in China’s Labour Market :Flexibility in the Face of a Global Financial CrisisCEA Conference on Global Economic Recovery: the Role of China and Other Emerging Economies, University of Oxford, July 12-13, 2010

2. Presentation Goals • Document and interpret what happened to workers in China since the crisis • Official data • Firm surveys (PBC-CASS enterprise survey 2009) • Household surveys (China Urban Labor Survey 2010) • Discuss key employment challenges moving forward • Labor market shortage? • Enforcement of labor regulations • Labor market informality

3. China’s Labor Market Before the Crisis • Rising real wages for migrants since 2005 (reaching double digit increases) • Steady increases in rural-urban migration (145 million individual migrants in 2009) • Rapid informalization of the urban labor market (by 2005, >50% of urban workers were employed informally) • China implemented a landmark Labor Contract Law starting on January 1, 2008 • Growth slowdown started in early 2008, before the crisis

4. National employment by registration status, 1978-2008

5. Reasons for rising informality • By keeping workers off the books, employers can avoid payroll taxes for social insurance programs (equal to 27% (18%) of wages for local (migrant) workers). • Young workers may prefer cash wages to social insurance coverage, esp. when benefits are not portable • Rise of the private sector (harder to monitor and regulate) • Massive inflow of migrants (less concern about protections for migrants)

6. China’s Labor Contract LawEffective: January 1, 2008 • Labor Contracts • After 2 fixed-term contracts, or 10 years of employment, contract must be open-ended • Limits on probationary period (1-3 months depending on contract length) • Regulations on temporary work agencies (labor service companies • Severance conditions • 30-day written notice • Severance pay: one month’s pay for each year of service (half month’s pay if less than 6 months), double severance pay for unfair dismissal

7. Global Economic Crisis and China’s External Trade

8. China Quarterly Growth Rates Growth was slowing prior to the crisis and rebounded quickly

9. China’s response to crisis • Massive economic stimulus package • Support to enterprises: • suspend tax payments • social insurance contributions delayed and/or reduced • credit expansion • wage subsidies • Expansion of labor training programs • Expansion of safety net programs (esp. rural minimum living standards subsidies) • Expanded social insurance coverage (including portable pension and unemployment insurance for migrants)

10. China’s $560 billion stimulus package

11. How did the crisis impact employment? • Job vacancy rates fell but bounced back quickly • Up to 20 million migrant workers lost jobs temporarily (MOA, NBS surveys) • 2/3 of those losing jobs reemployed by summer 2009 (Rozelle et al., 2009) • Migrant employment in cities increased by 2.9% from 2008 to 2009 (to 145 million) (NBS) • By 2010, very low urban unemployment rates but lower labor force participation (CULS)

12. Job vacancies declined during crisis but bounced back quickly

13. China National Firm Survey, November 2009 • Surveyed firms in 8 provinces: 4 coastal provinces (Shandong, Jiangsu, Zhejiang, and Guangdong), one northeast province (Jilin), one central province (Hubei), one northwest province (Shaanxi), and one southwest province (Sichuan). • Representative sample of >2000 manufacturing firms in 25 municipalities • Sampling frame: all firms who ever had credit relationship with any financial institution • Key collaborator: People’s Bank of China Research Department

14. Changes in employment, China firm survey 2009(% change from 6 months earlier) Crisis hit exporters, foreign-invested firms, and larger firms the hardest.

15. Changes in employment of migrants versus local residents, China firm survey 2009(% change from 6 months earlier) All workers affected by the crisis, but migrants more adversely affected than local workers, especially in exporting firms.

16. What best describes your current employment situation? (China firm survey 2009) Still very high labor demand, despite regulations and recent negative shocks. State/collective sector still plagued by surplus labor.

17. China Urban Labor Survey, February 2010 • In each of 6 cities, survey 700 local resident households and 600 migrant households • In 5 completed cities, surveyed 13,000 adults, including 9000 local residents 5000 migrants • 3-stage PPS sampling of urban sub-districts, neighborhoods, and households • Detailed enumeration of all dwellings in each neighborhood • Surveys directed by CASS, working closely with city Statistical Bureaus

18. Working hours and earnings before and after the crisis, (CULS, 2010)

19. Real Wages of Migrants Continued to Increase through the Crisis NBS=National Bureau of Statistics RCRE=Research Center for Rural Economy (Ministry of Agriculture) PBC=People’s Bank of China

20. Where did the jobs come from?Migrant employment by sector, 2008 and 2009 Units: %. Source: Sheng Laiyun of NBS (2009)

21. Reasons for Rising Wage Pressure • The end of surplus labor? • Appeal of the New Socialist Countryside • Rising costs of living • Looking forward: labor demand and supply • Q: Could rising wages be good for China?

22. How strictly have labor regulations been enforced? (China firm survey 2009) Firms report strict enforcement, with no weakening during the crisis. Smaller firms report less strict enforcement than larger firms.

23. Determinants of enforcement laxity Dependent variable (ordered probit): 0=very strict, 1=strict, 2=not strict Reference categories: food and beverage state sector Zhejiang Size quartile 4 (smallest size) 2007 Findings: enforcement stricter for: - capital producers - state sector - Sichuan, Jiangsu, Jilin (no strong pattern) - exporters - large firms - most recent period

24. Has new Labor Law influenced your firms hiring and firing decisions? (China firm survey 2009) One third of firms report that new Labor Law has influenced employment decisions. Influence greatest for foreign firms, but not much different for exporters and non-exporters. However, preliminary regression analysis finds no relationship between degree of enforcement and actual changes in employment .

25. Informality by residence status(CULS, 2001, 2005, and 2010) Notable reduction in informality of migrant employment

26. Informality rates over time(CULS, 2001, 2005, 2010)

27. Labor contract status (CULS, 2010)

28. Informal employment incidence, working hours, and earnings(China Urban Labor Survey, 2010)

29. Awareness of labor law provisions(CULS, 2010) Workers are aware of right to a labor contract, but vary in their familiarity with Specific provisions. Migrants and local residents have similar levels of awareness.

30. Social insurance coverage rates(CULS, 2005 and 2010) Progress increasing coverage of migrants, and expanding health insurance coverage, (especially to nonworking individuals)

31. Reflections on recent events: Foxconn and Honda in China

32. Conclusions • Crisis had very short-term impacts on employment • Labor Law is being implemented • Viewed as costly by enterprises • Trend of increasing informality reversed • …but no strong evidence of adverse impacts on employment • Rising employment and wages • Increasing prevalence of labor contracts and social insurance coverage • Suggests that robust labor demand is enabling regulatory reform

33. Challenges • Labor Law may become increasingly constraining over time • Tradeoffs between labor regulation and expansion of formal employment could emerge in future economic slowdowns • Increasing labor scarcity will require continued investments to raise labor productivity and enhanced mobility to exploit dynamic comparative advantage