Brief introduction of Chinese labor market and High potential employees (part 1)

The history of chinese labor market
In China, the concept of the labor market was first proposed at the third plenary session of the 14th central committee. In the early 30 years from the founding of the People’s Republic to reform period, Chinese labor market has experienced a process of existing, narrowing until disappearing.

From 1949 to 1952, Chinese labor market existed; from 1953 to 1957 Chinese Labor market was narrowed down to basically disappeared. From 1958 to 1978, labor market has disappeared completely. The gradual disappearance of the labor market was accompanied by the formation and ossified of highly concentrated traditional labor Management system. Both reinforced each other.

1949-1958 Chinese labor market situation

From the early days of the founding of the People’s Republic to the completion of socialist transformation, China implemented the combination of government allocation and free market configuration employment policy. During this period, government did not implemented unified job assignment of employment policy but companies can hire workers independently and can not arbitrarily dismissed workers. At the same time,
government began to implement planned distribution policy to graduates of middle school and colleges, to arrange them into the state sector jobs. In this period, types of vendors were still active in the city’s market. There were a lot of urban residents employed in the informal sector by free choosing way. In rural areas, farmers can choose to engage in agricultural production or to become the city workers according to their actual situation.

1958-1978 Chinese labor market situation

With the basic completion of socialist transformation and the gradual establishment of the planned economy, the original combination of government allocation and free market configuration employment policy was totally replaced by government allocation of employment. With suitable, January 9, 1958, the first session of the National People’s Congress promulgated the “People’s Republic of Household Registration Ordinance,“ Ordinance 10, paragraph 2 clearly stipulated:” Citizens from rural to urban areas must hold hired certificate by city’s labor department, school’s admission certificate or allow to move in certificate provide by Urban household registration office, to apply move out formalities In Resident household registration office.“ This means the government had basically established the restricted mobility (particularly rural-urban migration) binary
segmentation household registration system. It also means that government Held the right to decide the issue of employment of urban and rural residents. In 1975, the Constitution officially abolished the expression concerning freedom of movement, from legal point of view, fundamentally negates the possibility of urban and rural residents to migrate. In such a system, only in the period of “Great Leap Forward “, rural residents can obtain employment in city. Nation recruited 20 million rural residents to participate in industrial production, such as the well-known “iron and steel.” In the period of 196l-1963, the central government implemented economic adjustment policies, there were more than 1,300 people returned from the city to countryside to be engaged in agriculture. Therefore, except go to college or join the army, rural residents to urban migration and the possibility of access to employment opportunities is almost non-existent.

This rural-urban divide and coexistence, is the city’s labor market segmentation phenomenon – of course, this time there may not be called „labor market“, because at that time thoroughly do not acknowledge labor as an attribute of the product, not even talk about the through the market allocation of labor. This determines the economic sectors in the city; there is no free movement of labor.

Until 1978, there were no major changes made in the basic framework of China’s traditional economic system. After 1978, however, reform gradually breaks the internal integrity of the traditional economic system.

Before 1978, the economic trinity was regarded as the formal realization of socialism. Therefore, reforms had not touched on the basic framework of the traditional economic system. Major measures of the pre-1978 reforms included (1) eliminating the central government’s over-concentration of power by decentralizing administrative authority and responsibility and (2) eliminating unequal distribution of earnings among regions and sectors by adjusting their administrative authority and responsibility.

However, these changes only altered the ability of the local and sectoral authorities to allocate resources. The traditional development strategy, and accordingly the distorted macro-policy environment, the planned resource-allocation mechanism, and the puppet- like micro-management institution were left intact. Since their vested interests were lost through administrative adjustment, local and sectoral authorities would naturally try to regain the interests in the new round of adjustments. Economic reforms were thus caught in the cycle of decentralizing and re-centralizing administrative power and in the corresponding repetitious cycle of expansion and reduction in administrative organizations. For several decades, to implement the heavy-industry-oriented development strategy, China and many other countries relied on the trinity of the traditional economic system. None of them succeeded in achieving economic development. This taught China’s leaders that the prevailing economic theories and practices could not solve China’s problem.

Sectoral Composition of National Income 1952-78Current Price

Changes in Employment Structure, 1952-78

During the 27 years before the onset of reform, the proportion of agriculture in the national income declined steadily, while that of industry increased constantly. Thai of the other industries (construction, transportation, and commerce) fell or remained stagnant after a brief increase from 22.75% in 1952 to 24.5% in 1957. In 1978, it was 6.7 percentage points lower than it had been in 1957. While the share of industry in the national income rose from 19.52% in 1952 to 49.4% in 1978, employment in the industrial sector rose only from 6.0% in 1952 to 12.5% in 1978. By 1978, 73.3% of the labor force still remained in the agricultural sector. Obviously, such an industrial and labor employment structure was not consistent with the laws of economic development.

1980-90s Chinese labor market situation

From 1979 to 1991, the development of Chinese labor market has gone through three stages. The reason for this was because the Chinese economic reform has gone through three stages; also the reform of the labor system which promoted the development of China’s labor market has gone through three stages.

From 1978 to 1990, the employment elasticity of economic growth was up to 0.62. When GDP increased one percentage, the employment increased 0.62 percentage. Such high employment elasticity was very rare in the world economic history. It can be seen that the economic growth in 1978-1990 was created a lot of jobs which is a maximized increased employment.

In the mid- 20 century 90s, especially in 1998, China had experienced layoffs which maybe the largest in the world by far. From 1998 to 2002, the employment of state-owned units net decreased 40,510,000 people, and collective units net decreased 21,630,000 people. In just 5 years or so, about 60,000,000 people lost their jobs in cities and town.