Official statistics show rising unemployment in China from 1.8% in 1985 to 4.2% in 2005, while rural underemployment was estimated at 150-200 million people. Reforms after 1978 led to diversification of rural employment, including the growth of township and village enterprises, absorbing some surplus rural labor. However, central and western China still face large surpluses. Urban unemployment increased due to layoffs from state-owned enterprises, with estimates of total layoffs from 1998-2004 being 32 million. However, China's total employment has increased in line with its growing working age population, though aging will pose new challenges going forward.

1. Assess the reasons behind increasing unemployment
and under-employment in post-1978 China
Official urban unemployment statistics show a rising trend, from 1.8% in 1985 to 4.2% in 2005.
Underemployment in rural areas was hidden by the collective system, with estimates putting the surplus
labour pool around 150-200m people. In this paper we will start by analysing the changes in the rural
sector then moving on to focus on the urban unemployment situation, reform of state owned enterprises,
creation of labour markets, effect of rural urban migrants and finally examine the overall population
situation in China with an analysis of how the age structure of China’s population has changed since 1949.
The importance of the rural sector in China cannot be underestimated. In 2005 NBS statistics show the
rural labour force was 494.94m, 64% of the total labour force in China at that time. Although, in
percentage terms this is a decline from previous years we can see that the rural labour force, two thirds of
the total labour force, is still significant in modern day China. Prior to 1978 China was a planned
economy. Procurement of output was controlled in accordance with government quotas, distribution
controlled by methods of rationing and prices were set by the state. Commune farming was in operation
throughout China, as McMillan & Naughton (1992) studied, peasants were divided into production teams
and the commune’s earnings spread across the individual members. Those peasants with larger families
were given higher incomes and thus the link between effort and reward was broken. Underemployment in
the Communes was high, the Hukou system, which we will discuss in more detail later, controlled
peasants movements, forcing large numbers to stay in the countryside working the land. Maoist initiatives
such as The Great Leap Forward and The Cultural Revolution came and went leaving their mark on the
country. In the case of The Great Leap Forward, an estimated 30m deaths and in the case of the Cultural
Revolution as Bannister (1987) notes, urban youth, once graduated one school were sent to labour in
countryside, “Rural China was the residual population sink. By 1983-84 the dismantling of the collective
framework had uncovered the surplus rural labour force hidden by the collective system. It is estimated
on the low side that around a third of the total rural labour force or 150m people are surplus farm
labourers in China. Other factors were also at play, the rural labour force, as analysed by Knight and
Song (1995), grew by 2.9% per annum between 1980 and 1988, or 318m to 400m people, at the same
time increasing areas of arable land were being allocated for industrialisation and labour productivity was
rising due to increased agricultural mechanization. As cited Justin Yifu Lin (1992), market and planning
reforms allowed rural employment to diversify into new areas. The previous government obsession with
grain self sufficiency subsided and crop farming declined. NBS statistics since 1978 show us that the
market reforms allowed famers to diversify from what was traditionally a crop farming base, in 1978 80%
of GVO to 49.7% in 2005, into other areas such as Animal Husbandry and Fisheries which combined
made up 43.5% all GVO in 2005. These new agricultural activities were not as labour intensive as crop
farming and therefore exacerbated the surplus labour problem.
However, this was not the only diversification taking taking place in the post reform rural economy.
Again, NBS statistics show a large numbers of rural labour force moving into secondary and tertiary
employment sectors. It’s interesting to note that numbers involved in farming in 1978 were 274.88m,
peaked at 327.98m in 2000 and had declined to 305.96m by 2004, in contrast, numbers of workers
involved in Manufacturing, Construction, Transport/post/telecoms & Wholesale retail increased from

2. 20.96m in 1978 to 128.83m in 2004. However, the largest fundamental change in rural employment came
in the form of rural industrialization. From 1984-85 to 1999 the value of exports from Township and
Village Enterprises (TVE’s) grew from a mere US$2.4 to $93.3 billion, a total of 47.8% of China’s total
export amount (Zweig,2002:118). According to Knight and Song (1995) the total number of employees
working at TVE’s increased from 30m to 96m between 1980 and 1988 and according to NBS data that
number had increased to 142.72m by 2005. So by 2005 we start to see large proportions, up to 30% of the
rural labour force, working off farm, in what we would consider to be more productive jobs. At this stage
it is important to recognise the regional differences in China. Rural Industrialisation has been
predominantly based in the eastern coastal regions; note that 1995 NBS statistics, although dated, show
that in “East” coastal regions of China 66% of rural value output came from rural industry, compared with
45.8% for “Central” China and 36.6% for “Western” China. We can also compare historical movements
in share of the rural labour force. In “East” China the share of rural employment in rural industry rose
from 12.1% in 1985 to 21.4% in 1995, correspondingly in the same region the share of GDP generated
from agriculture as reduced from 37.6% in 1985 to 16.5% in 1995. From these statistics we can reason
that the benefits of job creation off farm caused by rural industrialization have occurred mainly in “East”
China and therefore the surplus labour problem is more acute in “Central” and “Western” China.
1993 an Agricultural Bank of China study showed that some 5.84% of rural people migrated for work,
which implies 49m migrants, however, a more up to date estimate by Xinhua news agency puts the figure
in 2006 at 150m. As part of the 1978 reforms and the government’s attempts to provide meaningful work
for the surplus rural labour force, regulations around movement of population and removal of food
rationing in the cities started to encourage higher numbers of rural urban migration. The large rural-urban
divide in terms of income, entitlement to social securities and health care provides a strong incentive for
rural people to want to become urban citizens. As analysed by Knight and Song (1995) China’s economic
development has done nothing to improve the urban-rural income gap, in 1978 income per capita in urban
areas was 316 yuan, 134 yuan for rural areas, a factory 2.35, by 1992 that same factor had increased to
2.53. We can also compare length of education of adults, in 1998 the urban areas had an average of 9.6
years, in rural areas it was 5.5 years. In the 1950’s the Chinese government introduced the Hukou system
which controls movement of its population by effectively registering a family to a certain village or town
which them prevents them from obtaining government benefits such as healthcare, education and housing
outside of that district. This tends to mean that the majority of rural urban migrants are male, of working
age and will migrate on a short term basis away from their families for the opportunity to work. The
arrival of rural migrants in cities has not gone unchallenged, in some quarters the belief that they have
taken jobs which would otherwise have been filled with laid off state workers or urban residents entering
the urban labour market for the first time has lead to some cities to re-impose restrictions on movements
of migrants into the city.
Now we have analysed the early reform period, the major changes in the agricultural sector and changes
in rural employment we must change our attention to the challenge of employment in the urban areas.
Here State Owned Enterprises (SOE’s) and their subsequent layoffs in the 1990’s and a lack of a
functioning labour market to put those people to work represent the bulk of the reason for unemployment
in urban areas.
Since the mid 1980’s the goal of the Chinese government has been to reduce excesses and inefficiencies
in public sector employment, a carryover from the pre reform era of central planning when often a

3. person’s first job was their last, an “Iron Rice Bowl”, providing secure employment with access to what
Knight and Song (1995) describe as a “mini welfare state’ of benefits such housing, medical care and
pensions. Using NBS data we can see the changes in employment in Urban SOE’s, in 1978, 74.51m
people worked in urban SOE’s, representing 78.3% of the urban workforce, this peaked in 1995 at
112.61m, some 59.1%, and then declined to 64.88m by 2005, 23.7% of the total urban workforce.
Official statistics for layoffs from SOE’s from 1998 to 2004 put the total as 32m. Whichever measure we
use, the downsizing is severe, as urban industry looses out to the development of TVE’s in rural areas and
industry shifts from a core of labour intensive factories to a more technological knowledge base. We have
also seen large scale layoffs in collective owned enterprises (COE’s) mostly in manufacturing and
construction sectors, of 28m. The results of the layoffs in terms official urban unemployment statistics
show the results of the layoffs, rising from a 1985 low of 1.8% to 4.2% in 2004, however, we will go on
challenge to calculation of official unemployment statistics later in the paper.
Post 1978 reforms there were some major developments in the urban labour market place, as cited by
Knight and Song (1995). Pre reforms the urban labour market force was heavily directed from central
government, post reform the urban labour market became decentralized with local authorities and state
enterprises establishing labour service companies responsible for advertising job vacancies, placing
people in work and training. After 1978 the wage systems underwent reform and we began to see SOE’s
start to pay bonuses and piece rates, providing incentives for workers to be more productive and in 1983
SOE’s were given the right to re-distribute their after tax profits for welfare contributions and bonuses.
However, Knight and Song (1995) proceed to argue the incentives for wide reaching reform were not in
place. These reforms did not progress the labour market very far forward and their still existed significant
labour surpluses, with third party sources such as The World Bank, Ministry of Labour and Chinese
government publishing estimates of between 10-20% surplus labour still in the SOE system.
When we talk about numbers of layoffs and unemployed we must also be aware of the challenges
involved in counting the numbers. As Sollinger (2001) argues,
“it is impossible to come to any kind of statistical judgement about China’s current
unemployment, particularly one drawing upon official statistics, which, because they are based
upon extremely restrictive definitions, are fundamentally flawed.”
Sollinger (2001) goes on to write that because of the governments narrow definitions of for “laid off” or
“Xiagang” and “unemployed” or “Shi Ye”, given that countless numbers of other scholars estimate
unemployment at the end of the nineties at anything from 5.7 to 9% and comparisons with official NBS
unemployment figures of around 3% then the government must be missing millions of unemployed from
their statistics. Those workers who don’t fit into the "Xiagang" or "Shiye" definitions Sollinger classes as
the “Hidden Unemployed”, either still working in the firm with nothing to do, receiving none or reduced
wages,but not been formally laid off and estimates the number at around 30m.
Demographers call this period “China’s Golden Age”. Average population growth from 1953-1957 and
1963-1972 of above 2.5% meant by the 1970’s China found it itself with large numbers of adults reaching
working age, dependency ratios of elderly and children were low, and in theory at least, demand for
government resources for education and healthcare should have relatively small. China’s population
increased from 588m (1953 Census) to 872m by 1972. The pro natalist policies of Mao were starting to
put strains in the nation during the 1960’s, however it wasn’t until 1972 that formal population controls

4. began to be implemented with what initially were voluntary schemes based on population growth targets
set at local levels. By the late seventies however policies were starting to shift from voluntary to
compulsory, with incentives being given to those couples who signed a “one child pledge”. By 1982, the
strategic importance of population control was recognized at a state level and the one child policy was
introduced with severe penalties for non adherence was implemented. Given the traditional Chinese
preference for baby boys, particularly in rural areas, and then limiting families to one child, has created
abnormal traits in the gender balance between girls and boys. A study by Li Yong Ping and Peng Xi Zhe
(2000) shows that the sex ratio at birth (SRAB) in 1995 was 116.57, that is 116 males to 100 females, in
general they found that the abnormal SRAB is most serious in rural areas. However, the population
control policies put into action by the Chinese government did have the desired effect of controlling
population growth. Total fertility rates were reduced and population growth from 1971-1977 averaged
1.5%, 1978-85 1.2%, 1985-90 1.6%, 1990-95 1.16% and 1995-2005 0.77%. Official estimates are that the
policies saved some 250m births from 1975-2000. The challenge comes when China had to find suitable
employment for the cohort of births during the high fertility era of 1950 to 1975. In 1953, the age group
15-64, i.e those in working age was 57.3%; by 2005 this same statistic had risen to 72%; the proportion of
young people aged 0-14 was in 1982 33.6% and by 2005 has fallen to 20.3%, contrast this is rising
numbers of aged population (>65), from 4.9% in 1982 to 7.5% in 2005. As Banister (2002) notes, from
1990, which was the end of the peak period of new entrants into the labour market, until 2005, the
percentage of total population in employment as ranged from 56.6% to 58%. The evidence suggests that
job creation in China has at least been able to increase in line with the increases in working age
population. However, the challenge now comes from an ageing population created by low fertility rates
after 1971 to present day.
In conclusion we can say that reforms in terms of diversification of employment opportunities for the
rural labour force and rural-urban migration to absorb some of the surplus rural labour can be said to be
successful in their basic outcome of creating jobs for the masses, however, it must be noted that the large
number of surplus rural labour in Central and Western China represents a major concern for the Chinese
government and when considered in the context of social unrest. Questions remain over the measures of
levels of unemployment, particularly in urban areas and lack of success of placement of laid of state
workers in satisfactory employment. However, it would appear that given the ageing population in China,
the most important aspect for the government to focus on now is the creation of Macro policies designed
to modernise the Chinese economy so that it will be able to support the large cohorts of working age
population who will start retiring in large numbers from 2020-2030 onwards.

5. References
McMillan, John & Naughton, Barry (1992) How to Reform a Planned Economy: lessons from China,
Oxford Review of Economic Policy, 8(1): 130-143
Banister, Judith (1987) China’s Changing Population, Stanford CA:Stanford University Press
Knight, John & Song, Lina (1995) Towards a Labour Market in China: Oxford Review of Economic
Policy, 11(4):97-117
Lin, Justin Yifu (1992) Rural Reforms and Agricultural Growth in China: American Economic Review,
82(1), March: 34-51
Zweig, David (2002) Internationalising China: Domestic Interests and Global Linkages: Ithaca NY and
London: Cornell University Press.
Sollinger, Dorothy (2001) Why we cannot count the ‘unemployed’: The China Quarterly 167 (Sept), pp
671-88
Li Yong Ping & Peng Xi Zhe (2000) Age and sex structures: Peng Xi Zhe and Gui Zhigang, eds, The
Changing population of China, Blackwell, Oxford, pp. 64-76.
NBS (annual) Statistical Yearbook of China, Beijing: National Statistical Bureau:
www.stats.gov.cn/english/newrelease/publications/ - Sourced from courses notes, Management in China:
Topics in the Chinese Economy, Centre for Financial and Management Studies, SOAS, University of
London.