As China faces increasing pressure to create new work opportunities and a skilled labor force, it must consider new tactics to stabilize the job market and the wider economy
At a politburo conference held at the end of last July, the Chinese government defined its major economic tasks for the latter half of 2018 as stabilizing employment, finance, foreign trade, investment and economic expectations, with employment designated the top priority. Four months later, the State Council, China’s cabinet, issued a guidance document on promoting these tasks, showing the government’s heavy emphasis on the so-called six “stabilizations,” especially that of employment.
China has made significant achievements in increasing employment over the past decade. Employment grew by an average of more than 13 million people annually over six consecutive years (2012-2018). A 2017 report on global competitiveness, released by the Swiss-based International Institute for Management Development, showed that China’s employment rate ranked first among the world’s 63 biggest economies.
However, the employment rate is still challenged (by a variety of elements, such as the economic slowdown, China’s industrial restructuring and external issues.) I believe the following four factors play a leading role in stabilizing employment.
Investment Not a Panacea
When talking about government responsibilities, employment was usually designated as having to do with people’s livelihood. The “six stabilizations” mean it has been upgraded to the macro-economic level and now it is a leading index used to appraise macro-economic control in the medium to long term, (with the other three being economic growth, fluctuations in the consumer price index (CPI) and the balance of trade.)
It does not mean that investment is regarded as less important, but it is an indication that we can no longer boost GDP purely by investment, and that investment will not definitely lead to a rise in employment elasticity (the ratio of employment growth to GDP growth). The employment rate is now a more reliable indicator on how we deal with the relationship between employment and investment.
The US can give us some experience on this issue. To respond to the rising unemployment rate caused by the subprime mortgage crisis, the US issued the American Recovery and Reinvestment Act in 2009, with increasing employment and expanding investment being big focuses. The Act detailed how to keep the opportunities that offer employment while assisting those that were heavily impacted by the economic slump. It also stated how to increase economic returns by promoting technological progress in science and health by investing in fields that bring about long-term economic returns, such as transportation, environmental protection and infrastructure.
As China’s economy is cooling and people always hope to stimulate the economy with investment, I worry that any discussion about investment will mislead local governments to blindly make investments in a bid to stimulate pure GDP growth, and even do this by administrative order. Actually, China’s current GDP growth, around six percent, is still much higher than that in other leading economies, so I suggest local governments prioritize boosting employment as the chief focus of future investment and use it to appraise returns in the medium to long term.
Does Innovation Kill Jobs?
Due to China’s aging population, there is less pressure from the increased number of unemployed; rather there are more challenges arising from labor restructuring caused by industrial reconstruction, technical upgrading and changes in the required knowledge base and ages. Among those elements, innovation development plays the
biggest part.
As the internet, artificial intelligence (AI) and robots are more familiar to the public, there is more emphasis on innovation. Many renowned foreign and domestic experts have warned that technological innovations will put a lot of people out of work. For example, Israeli professor Yuval Noah Harari, author of Sapiens: A Brief History of Humankind, predicted in his book 21 Lessons for the 21st Century that due to the dearth of paid labor for humans, an enormous number of people would become “spare” in the 21st century, just as a huge proletariat class emerged in the 19th century.
This idea is prevalent now, leading many to believe that innovation is a job killer. This will prove to be correct in some fields. Supposing AI is widely used in a port, for example, half the dockworkers would be laid off. Similarly, 80 percent of workers will lose their jobs if a manufacturing plant automates its assembly lines.
But this has been happening since the dawn of the industrial age, and we have to note that innovation will create many new positions, although we do not know quite how many at the very beginning of an innovation. For example, the invention of the automobile made the job of coachman obsolete, but we could not at that time predict how many new positions would be created along with the new industrial chain of designing, producing and repairing automobiles.
I would like to compare the relationship between employment and innovation to that between human knowledge and the unknown. The more we know about the world, the more remains to be known. Likewise, just as an innovation becomes more widely adopted, the bigger the potential it has to provide new employment.
Yet, returning to the micro-view, we still have to care more about the structural unemployment caused by innovation and provide social security and training for those who are skilled out of the labor market.
Lowering Fees to Boost Firms
In my opinion, rising employment rates should be prioritized over the other three indexes of macro-economic control, namely, economic growth, CPI fluctuation and trade balance, in the 13th and 14th Five-Year Plans (2016-2025). Similarly, employment should take precedence over salary and social insurance in the labor market.
In a market economy, I do not believe a government should interfere in any enterprise’s right to operate the way it pleases, including the right to define how many it employs or pays salaries. Although Chinese laws ensure a collective bargaining system that allows employees to negotiate salaries with employers, the government may postpone raising the threshold of the national minimum wage to help ease employment pressure. It is a very common practice in developed countries.
Social insurance fees are another big concern. Many enterprises have complained that the amount of social insurance deductions firms have to pay has put too heavy a financial load on them, and many countries have adopted a temporary reduction of these in response to unemployment pressure. For example, the 2009 American Recovery and Reinvestment Act has temporarily exempted enterprises from unemployment insurance fees, Singapore slashed its accumulation fund by 10 percent during the Asian Financial Crisis, and Germany’s social insurance rate for enterprises is adjusted along with economic fluctuations.
In recent years, China reduced the social insurance rate for enterprises several times – Shanghai and Harbin, capital of Heilongjiang Province, for example, reduced the pension insurance rate for enterprises from 22 to 20 percent of each employee’s monthly wage, and Xiamen, in East China’s Fujian Province, reduced it from 14 to 12 percent. Yet, China’s current social insurance rate is still high compared to that of some other countries, leading many enterprises and local governments to bend the rules by different means. According to the information I have, Chinese enterprises’ actual average insurance rate is more than 10 percent lower than the statutory one.
Worse, the different insurance rates have further widened regional gaps and violated the “law of large numbers” that social insurance should abide by, making it even harder for enterprises in traditional industrial regions to compete with those in new ones. So I suggest the government further reduce the social insurance rate and standardize it between different provinces and municipalities, with State capital being used to fill regional deficits, if any. This is standard international practice adopted by most countries. Premier Li Keqiang said we have to pluck up our courage to break up the interest groups that may block the reform.
Song Xiaowu believes the ultimate solution to the migrant worker issue is to make them official citizens of urban areas
Consigning ‘Migrant Workers’ to History
For a long time, migrant workers – a Chinese term for people who move from predominantly rural areas to urban areas for work – are often not counted among employment statistics. People used to regard this group of people as a unique stabilizer for China’s labor market – when there were fewer jobs in urban areas, millions of migrant workers would return home until urban job markets picked up. But this situation has radically changed as migrant workers have become a mainstay of the urban employed population.
A 2017 survey by the All-China Federation of Trade Unions (ACFTU) showed that 42 percent of ACFTU members were migrant workers. Data from the Ministry of Human Resources and Social
Insurance also showed that in 2017, China was home to 286.3 million migrant workers, making up more than 67 percent of total employed people in urban areas.
More importantly, half of the migrant workers are younger, who unlike their forebears, know little about farm work and are therefore unwilling to return to rural areas, even if there is a lack of urban jobs. Many new-generation migrant workers identify as an inhabitant of the city they live in, and such a sense of identity will increase as the population keeps expanding – compared to 2016, the number of next-generation migrant workers reportedly rose by 2.4 percent in 2017.
Against this backdrop, we must pay increased attention to the employment rate of migrant workers and strictly appraise how they are impacted by the Sino-US trade conflict and the industrial structural adjustment which has led to job losses. I think the ultimate solution to the migrant worker issue is to make them official citizens of urban areas, as the central government has reiterated. I hope this will speed up in the 13th Five-Year Plan (2016-2020), and by the 14th Five-Year Plan (2021-2025), the term “migrant worker” will be consigned to history.
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