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Creating the entrepreneur farmers needed yesterday, today and tomorrow

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Creating the entrepreneur farmers needed yesterday, today and tomorrow

  1. 1. Creating the entrepreneur farmers needed yesterday, today and tomorrow Xiaobing Wang, Jikun Huang, Linxiu Zhang, Scott Rozelle Jan 25, 2011
  2. 2. Percent of Pop’n in Ag. Sector Income per Capita US and other OECD nations Ethiopia, Rwanda, etc. “ Iron Law of Economic Development” Data from the World Bank
  3. 3. Percent of Pop’n in Ag. Sector Income per Capita Development = Industrialization Modernization = Urbanization Zero : there are no high income countries in world with more than 10% of their populations that live in agriculture 10%
  4. 4. Percent of Pop’n in Ag. Sector Income per Capita “ Miracle Development—with Taiwanese Characteristics” Taiwan—1950s Taiwan—1974 Taiwan—today Taiwan—1987
  5. 5. Percent of Pop’n in Ag. Sector Income per Capita <ul><li>In 1980, China was: </li></ul><ul><li>Poor </li></ul><ul><li>Rural </li></ul><ul><li>Agricultural </li></ul>China in 1980s China at the End of Socialism
  6. 9. Is China moving along the Transformation Path, according to the Iron Law ? moving along the Transformation Path, according to the Iron Law ?hina moving along the Transformation Path, according to the Iron Law ? <ul><li>From left to right … INCOME </li></ul><ul><li>From top to down … URBANIZATION/INDUSTRIALIZATION </li></ul>
  7. 10. China’s per capita GDP (at PPP) in the last one thousand years Tang Song Ming Ch’ing Since 1978 1911 – 1970s Source: Angus Maddison Poverty line
  8. 11. Becoming better off … income rising …
  9. 12. Shenzhen in 1980 … … and 2000
  10. 13. Transformation Path Percent of Pop’n in Ag. Sector Income per Capita So it is clear that as China is growing (moving left to right across the graph), it also is beginning to move “down” the transformation path … this is “development”
  11. 14. What was the Role of Self-employed (through 2000)? Self-employed Migrant Wage Earners
  12. 15. <ul><li>Self employment </li></ul><ul><li>Definition: </li></ul><ul><ul><li>Owned and operated by a single individual or group of individuals </li></ul></ul><ul><ul><li>Owner’s earnings is in form of profits </li></ul></ul><ul><ul><li>Non-farm (does not include farming, although this is also a self-employed, entrepreneurial sector) </li></ul></ul>
  13. 16. Reason 2: Demand for services high <ul><li>High income growth </li></ul><ul><li>Service sector under developed </li></ul><ul><li>High demand for services that could be provided by self employed </li></ul>Why was there so much SE activity?
  14. 17. Why was there so much SE activity? <ul><li>Reason 2: during the 1980s and 1990s  the hourly wage of an unskilled worker was almost flat .. </li></ul>Yuan / hour (real 2000 yuan)
  15. 18. <ul><li>Reports that migrants continue to pour into cities … </li></ul><ul><li>Reports that wages are rising fast and that there are labor shortages in many areas … </li></ul><ul><li>Service sector across China is continuing to mature … </li></ul>But, China’s labor markets have continued to evolved between 2000 and 2008 …
  16. 19. Question for Rest of Presentation <ul><li>What is happening to the SE sector over the past decade? </li></ul><ul><li>From these trends, can we think about what will happen in the future? </li></ul><ul><li>What does this mean for clustering? </li></ul>speculative
  17. 20. Plan for the rest of the paper <ul><li>Since this is mostly a descriptive, empirical paper: </li></ul><ul><li>FIRST: describe data </li></ul><ul><li>SECOND: use data to achieve our objectives: </li></ul><ul><li>a) disaggregate trends in rural labor by cohort, by off-farm type </li></ul><ul><li>b) explore the driving force behind </li></ul>
  18. 21. Data <ul><li>Collected data from a nationally representative sample of households in late 2000 and in 2008 </li></ul><ul><ul><li>6 provinces - 1 in each of China’s “major zones” </li></ul></ul><ul><ul><ul><li>Hebei, Shaanxi, Liaoning, Zhejiang, Sichuan, Hubei </li></ul></ul></ul><ul><ul><li>5 counties per province-- one randomly selected from each income quintile </li></ul></ul><ul><ul><li>2 villages / county </li></ul></ul><ul><ul><li>20 households randomly selected in each </li></ul></ul>
  19. 22. Sichuan Hubei Shaanxi Hebei Zhejiang Liaoning 2000 China National Land and Labor Survey (First Wave) -- 6 Provinces -- 5 Counties / Province -- 2 Villages / County -- 20 Households / Village  1200 hh’s
  20. 23. Sichuan Hubei Shaanxi Hebei Zhejiang Liaoning 2008 China National Land and Labor Survey ( Second Wave ) -- 6 Provinces -- 5 Counties / Province -- 2 Villages / County -- 20 Households / Village  1160 hh’s Two villages in one county were almost completely destroyed by the earthquake in Sichuan Surveyed: May 2009
  21. 24. Contents of Survey <ul><li>Housing </li></ul><ul><li>Farmland </li></ul><ul><li>Agriculture </li></ul><ul><li>Self-run enterprise </li></ul><ul><li>Consumer durables </li></ul><ul><li>Other income </li></ul><ul><li>Household basic information </li></ul><ul><li>Employment (by individual … i.e., for men/women; by age) </li></ul><ul><ul><li>off-farm employment from 2000 to 2008 (annual data) </li></ul></ul><ul><ul><li>Intensive off farm SE form </li></ul></ul>
  22. 25. In 2008: 62% of rural labor force had jobs off the farm  more than 80% of households had at least 1 person working off the farm In 1980: only 16% worked off the farm Overall Increase in Off-farm Work by Rural Laborers (note 100% is the full rural labor force ≈ 500 million people)
  23. 26. Cohort effect of off-farm participation
  24. 27. During 2000s, SE is stagnant and migrant wage earners keep growing fast Self-employed Migrant Wage Earners
  25. 28. Remember what happened through 2000? Self-employed Migrant Wage Earners
  26. 29. SE and Migrant Wage Earners, 1981 to 2008 Self-employed Migrant Wage Earners
  27. 30. Number of SE Firms Even more dynamic than this … 60% of firms “died” between 2000 and 2008 … 50% of firms are “new” (born between 2000 and 2008 …
  28. 31. Why did this happen? Why did this happen?
  29. 32. Wages in recent years also have risen fast (not surprising—given there are few people who do not have a job in most prime-aged cohorts) <ul><li>During the 1980s and 1990s  the hourly wage of an unskilled worker was almost flat .. </li></ul><ul><li>But, between 2000 and 2008, rose by almost 60% (or 6.5% annually) </li></ul>Yuan / hour (real 2008 yuan)
  30. 33. Wages and Returns to Self Employment, 2000 and 2008 Predicted wage for the Self Employed Returns to Self Employment
  31. 34. Income gap of being self-employer The income gap declines 2000 2008 Actual hourly earnings 7.2 7.4 Predicted wage 3.1 4.7 Difference 4.1 2.7
  32. 35. Probit estimation of rural laborer’s occupation choice, 2008 Variables If off-farm rural laborers are self-employed (Self-employer=1; Wage earner=0) Earning gap 0.010** 0.007* (2.22) (1.79) Gender -0.249** -0.187* (-2.53) (-1.80) Training 0.413*** 0.405*** (4.24) (3.86) Marriage 0.508*** 0.471*** (3.32) (2.93) Age 0.084*** 0.085** (2.69) (2.59) Age square -0.0008** -0.0008** (-2.23) (-2.15)
  33. 36. Why? <ul><li>Wages will continue to rise [faster than GDP … from now on …] </li></ul><ul><li>Price of capital will continue to fall </li></ul><ul><li>Service sector will rise </li></ul><ul><li>Demand for quality in the economy will rise [Sonobe, Otsuka et al.] </li></ul>
  34. 37. So what about self-employed firms in China in the future <ul><li>Mostly will be gone … </li></ul><ul><li>Replaced by large, branded, manufacturing giants … </li></ul><ul><li>For a long time we will feel the influence of clustering … but … it will not be clustering as we see in the 2000s </li></ul><ul><li>There is still a lot to study … and all of it is interesting!! </li></ul>

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