The Grass is Always Greener—Chinese Unemployment

September 15, 2017

 Photo Source: Wikipedia Commons

 

        A lot has been said regarding China—especially since its entrance into the World Trade Organization (WTO) on December 11, 2001 (wtc.org).  Most of the conversation has been posited in competitive speech.  Meaning, the words and examples regarding China are primarily couched in ways that make it Us against Them.  There might very well be some truth to the competitive aspect of global economics and power.  The balance of trade, diplomatic, and military power is surely weightier when there is a perceived difference in values, and I think over time, the relationship between China and the West will rest in that question: are Chinese values different from American values, or is there something more universal like human values?

 

        With that said, it always feels cooling to the mind to go over tables and charts and to plow through fifteen pages or so, just on methodologies used for study, which are the hallmarks of an academic paper. The paper is part of a National Bureau of Economic Research (NBER) program called the NBER Working Paper Series.  On the title page of the paper, it explains, “NBER working papers are circulated for discussion and comment purposes.  They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.” So, there is both the paper’s disclaimer as well as me following the paper’s intention.

 

       Long Run Trends in Unemployment and Labor Force Participation in China by Shuanizhang Feng, Yingyao Hu, and Robert Moffitt (August 2015) is the title of the paper I mentioned above.  It is a 46-page survey on the unemployment rates in China starting from the nineteen eighties and ending (officially) with 2009.  A link will be provided below if you would like to read the paper in its entirety.

 

        The first issue the paper addresses is that Chinese labor statistics are considered by academics as notoriously bad.  When comparing the official Chinese unemployment rate to the rest of the world, their numbers chart a line that bears no resemblance to any known economic theory. The researchers then explain that they found another route to get at some authentic numbers, “In this paper, we provide a new long series of estimates of nationally representative levels of unemployment rates and labor market participation rates in China over the period 1988-2009, using newly available microdata from a household survey that covers all of urban China.  The Urban Household Survey (UHS) has been administered by China’s National Bureau of Statistics (NBS) since the 1980’s.” (p.4, Feng, Hu, Moffitt) Armed with this UHS as well as loads of other magical, mathematical, statistical wonders, they argue that they have come up with a pretty accurate line chart that tells a more accurate story of Chinese unemployment rates from 1988 to 2009 with the most dramatic news being the fact that things are not as rosy as the official rates had been reported.

 

       At first, the official Chinese numbers are pretty accurate with a relatively low rate of unemployment.  However, when you get to the period of 1995 to 2002, things go haywire, and according to authors of the paper, the unemployment rate in China makes a massive upward spike.  “But the dramatic rise in the rate in 1995-2002 coincided with a period of mass layoffs from state-owned enterprises (SOEs).” (p.5, Feng, Hu, Moffitt) Essentially, when China began to transition its economy from being nearly fully state operated to one open to more privately run enterprises, there was a massive spike in unemployment. It jumped far higher than any nation in the world during this period (according to their charts).  In fact, it was such a steep spike in unemployment that while the numbers have settled from their all-time high, China retained a very high unemployment rate through 2009 (according to their charts).

 

       The lowering of the spike began in 2002 which mirrored China’s entrance into the World Trade Organization which they argue has helped lower the unemployment rate in China. The paper ends dryly, “The exact labor market consequences of many important events, such as rural-to-urban migration, WTO entry, and mass layoff from SOEs, as well as secular social and cultural changes that may have affected participation patterns, are left for further investigation in the future” (p.24, Feng, Hu, Moffitt).

 

       It’s particularly difficult to be dry and numbers-based when discussing or thinking about something as personal and human-level intense as unemployment.  The upshot of the paper is that while a lot has been said about China, not a lot has been said about the Chinese and their story.  According to this paper, they have as a nation experienced in the late 1990’s and the early 2000’s a massive shock that created a massive amount of unemployment.  It is also important to note that this paper (which also cites many other papers which stand in agreement) views the official Chinese unemployment rate as dubious, “One recent article that reviewed the quality of Chinese labor statistics claimed that the official unemployment rate is ‘almost useless’” (p.3 Feng, Hu, Moffitt). Essentially, things are not as rosy on the other side of the fence as the official Chinese labor rates are reporting.  With that said, it is important to add another voice from our side of the fence regarding China and America.  The paper Unemployment and Labor Force Participation in China (Feng, Hu, Moffitt) attributes China joining the WTO as a clear relief line for Chinese labor woes.  However, in a blog post on the Council on Foreign Relations website (cfr.org) by Brad W. Setser (an economist and former staff economist at the U.S. Dept. of the Treasury) entitled, China’s WTO Entry, 15 Years On, January 18, 2017, another vantage point is expressed. It’s a great essay and worth reading—especially in contrast to the above paper.  However, you can grasp its overall tone and nature with this, “The domestic labor market adjustment to the ‘China’ shock was not smooth.  Autor, Dorn, and Hanson’s research shows the China shock left a significant number of Americans temporarily without jobs and left some workers and communities permanently worse off.  The U.S. labor market isn’t as homogenous or as flexible as many thought; displaced workers in the most exposed regions often dropped out of the work force rather than finding new, let alone better jobs.” (Sester, cfr.org, 2017).

 

      The above quote harmonizes with this line from the academic paper, “We also show that regions with more SOEs layoffs experienced a greater increase in unemployment.” (p.23, Feng, Hu, Moffitt) I suppose the lesson is that both the Chinese and American workers have suffered but at different times and for different reasons— the grass has been brown on both sides of the fence for a lot of people.

 

      If you are interested in learning more about this topic, you can read Feng, Hu, and Moffitt's paper on Chinese unemployment here and Sester's blog post on China's entry into the WTO here.

 

 

Share on Facebook
Share on Twitter
Please reload