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Structural transformation of the economy has taken place with the growth
of the modern industry
China
With a 1.3 billion population, China is known as a labour-abundant country.
Cheap and unlimited labour supply from the agricultural sector with low
productivity to the industrial sector with high productivity has contributed to
Chinas rapid economic growth in the process of its export-oriented
industrialization.
Waves of labour shortage that hit the country in 2002, 2004 and 2009
For a time employers in south-eastern coastal areas experienced difficulties in
recruiting enough migrant workers.
China
Labour costs (including benefits) for blue-collar workers in Guangdong rose by
12% a year, in dollar terms, from 2002 to 2009; in Shanghai, 14% a year.
Roland Berger, a consultancy, reckons the comparable figure was only 8% in the
Philippines and 1% in Mexico.
Chinas wage curves appear to conform to the Lewis models Turning Point
prediction.
China is gradually moving toward the Lewis Turning Point. IMF predicts that China will
reach the Lewis Turning Point between 2020 and 2025.
Indicators
Key Observations
The agricultural wage has increased over time
the marginal product of labor in the traditional sector has been increasing at a
faster rate than wages.
Although the gap between the marginal product and wage is narrowing, the
average wage-curve as a whole still remains above the curve.
The Anomaly
China faces the challenge of finding more productive employment
for a huge pool of underutilized rural labor.
Also there is a tightening of the labor market in southern coastal
cities, and the consequent rise in wage rates in those areas.
Reasons :
Chinas huge size which restricts migration
administrative restrictions (such as Hukou) on internal
migration that still exist.
ONE-CHILD POLICY
age
Conclusion
Policy scenario analysis reveals that
relaxation of the one-child policy, hukou reform will delay LTP
Financial reform and higher TFP accelerate the transition to
LTP
through wealth effects and greater profitability of firms,
respectively.
Market and policy responses to LTP transition will be largely
peripheral
demographics forces play a dominant role in the imminent
transition to a labour shortage economy.
Bibliography
Lewis Growth Model and Chinas Industrialization Nazrul Islam
and Kazuhiko Yokota, May 2008
IMF Working paper: Chronicle of a Decline Foretold: Has China
Reached the Lewis Turning Point?