Saturday, November 25, 2006
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Does China have a slack labor market?
There are many questions that flummox me about China's economy (when will the central bank diversify its holdings? Are nonperforming loans a real problem or not? Why has Chinese saving increased just when Beijing took steps to boost consumption? Just how efficient is foreign and domestic Chinese investment?) In the Washington Post, Edward Cody suggests a new empirical puzzle -- how can I reconcile reports about the dearth of skilled labor in China with this one from Cody?
An open-ended rise in living standards, particularly for the educated middle class, has been part of an unspoken pact under which the party retains a monopoly on political power despite the country's turn away from socialism.The article suggests that a slackening economy is the culprit. Another possible explanation is that as labor productivity increases from the high rate of investment in capital stock, job growth in China will no longer keep pace with growth in GDP. Another, more quirky hypothesis is that the market for English students -- who disproportionately show up in western press reports -- is particularly bad.
But I'd be curious to hear other hypotheses.
Last year, a number of graduates I knew in Beijing had a tough time finding jobs, and they a) had a Beijing hukou (residency card), b) had a degree from a mid-range university (places like Minorities University and Beijing Finance and Econ). These tended to be engineering and finance grads as well.
In the end, I think all of them found a job, but there's certainly nothing along the lines of a salary negotiation or a signing bonus that is common for those fields in the US.
There has been an enormous increase in the number of degree holders in China over the last few years; good in the long run, but it will definitely take some time for the economy to adjust. As far as technical skills are concerned, the students I knew tended to seem as qualified as US graduates from mid-level universities here, so I don't think it's a quality of education problem as is seen in some other poorer countries.posted by: cure on 11.25.06 at 02:46 PM [permalink]
Also, remember that China's 'labor advantage' is more properly spelled 'extremely cheap labor'. If these people wanted a (very dirty and dangerous) factory job, which paid $1/hr, they could probably get one.posted by: Barry on 11.25.06 at 02:46 PM [permalink]
I think Barry's onto it. When the economic strategy is geared towards creating low-end jobs, should we be surprised that the creation of higher-level jobs is slower? Does this sound at all familiar?posted by: Dave Schuler on 11.25.06 at 02:46 PM [permalink]
China's recent development actually hasn't been all that labor intensive. It has been very capital intensive. Read the IMF's latest Asian regional outlook for all the details. Labor income is actually declining as a share of Chinese GDP ... and wage growth has lagged productivity growth. So the fact that some skilled labor is now facing a bit of slack in the labor market isn't a total surprise.
Here is another possibility --
Interest rates in China are very low -- both because of high savings and because of government policy. (State) Firms can get outside capital for say 6% nominal, and firms with retained earnings should invest if they earn more than they get on bank deposits (something like 2.5%), absent a more developed policy for distributing dividends. That has created incentives to substitute capital for labor (think importing western auto technology that was designed to minimize the use of expensive German/ UAW labor ... to a country with much lower labor costs) and kept overall job creation subdued during China's recent boom.
China's government also clamped down on investment growth toward the middle of the year, so there may be a cyclical component as well. China may be growing at 10% rather than 15% ... or something like that. My numbers are made up, but there presumably has been a bit more volatility in China's growth during its boom than appears in the official data.posted by: brad setser on 11.25.06 at 02:46 PM [permalink]
posted by: brad setser on 11.25.06 at 02:46 PM [permalink]
Hmm ... I doubt whether the solution would work:
"Tian Chengping, the labor and social security minister, predicted that about 1.2 million of the 2007 university graduates will have similar trouble finding employment. As a result, his ministry announced Tuesday, colleges will be forced to restrict admissions into study programs with low postgraduate employment rates."
So a government official is going to guess for which sort of graduates there will or will not be demand in five years time? All the best wishes for that man, he'll need it.posted by: Harmen Breedeveld on 11.25.06 at 02:46 PM [permalink]
"You may have a job, but it's very hard to have an ideal one." Who does?
"...she has been looking for work in the computer industry since graduating last summer, but in the meantime, she has to serve sausages and beer to pay the rent because nothing is available in her field." Welcome to capitalist realities.
Who in the US could get a computer job after the dot-bomb blew up? "All high tech jobs were out-sourced to India..." This year, computer seniors from reputable colleges, such as UI-Champaign, have already had jobs lined up before they graduate in May 2007. The pay for a programmer is $78,000 in the West coast, $65,000 in the East, $55,000 in the Midwest.
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