Policy Issues of China's Urban Unemployment

I. INTRODUCTION In the past two decades, China initiated many reforms, including agricultural, urban housing, pension, medical care, taxation, financial sector, and state-owned enterprise (SOB) reforms. With these reforms, China's economy experienced a rapid growth in 1978-98, at an average annual real gross domestic product growth rate of 9.8%. This rapid growth created a lot of jobs in China, and the number of employed persons increased from 401.5 million in 1978 to 699.6 million in 1998 (National Bureau of Statistics [NBS], 1999a). These reforms are also transforming China's economy from a socialist planning economy to a socialist market economy. Like other transitional economies, China faces many challenges. One major challenge is its increasing unemployment in urban areas. In China, open urban unemployment consists of laid-off workers and registered unemployed persons. Starting 1993, to improve SOE efficiency, China has laid off an increasing number of former SOE employees. Although no consistent statistics are available, several studies have shown that there were about 3 million laid-off SOB workers in 1993, and the figure rose to 5.6 million in 1995, 11.5 million in 1997, and 11.7 million in 1999 (Gu, 1999; Lei, 1998; Lu, 1998; People's Daily, March 8, 2000). According to Lei (1998), layoff is the issue of most concern to urban residents, followed by corruption, pollution, crime, and social protection. Yuan and Fan (1998) showed that 16.6% of urban residents in five major Chinese cities ranked layoff as the worst social problem in China. During 1993-98, urban registered unemployment also worsened consistently. The number of registered unemployed workers was 4.2 million in 1993; it increased to 5.7 million in 1998, a 40% increase in just five years (NBS, 1998a, 1999a). No doubt layoff and unemployment problem has become a major concern for not only policy makers but also the public in general. Further worsening layoff and urban unemployment could hinder economic development and cause social instability. The article is organized as follows. Section II investigates causes and characteristics of urban layoff and unemployment. Section III discusses policy issues involving layoff and unemployment in urban China. Section IV gives conclusions. Most previous studies have addressed the problem of urban layoff and unemployment by focusing on demand-side factors, such as creating jobs by increasing government spending, attracting foreign direct investment (FDI), promoting exports, expanding labor-intensive industries, and developing the nonstate economy (Lu, 1998; Mo, 1998; Dong and Liu, 2000). Little research has been done on the supply side of the labor market. However, supply-side policies are equally important to China's unemployment problem, because the number of unemployed workers equates excess labor supply, which depends on both labor demand and labor supply. In this article, four major supplyside policies will be discussed, including expanding senior secondary and higher education, providing job-training programs, limiting massive peasant migration to Chinese cities, and lowering labor participation rate. II. LAYOFF AND UNEMPLOYMENT PROBLEMS IN URBAN CHINA Actual open urban unemployment in China assumes two forms. One consists of registered unemployed persons. This group of people are registered as permanent urban residents, engaged in nonagricultural activities, aged within the range of working age, capable of working, unemployed but desirous to be employed, and have registered at local employment service agencies to apply for jobs. The number in this group increased from 4.2 million in 1993 to 5.7 million in 1998. Respectively, the registered unemployment rate in urban areas increased from 2.6% in 1993 to 3.1% in 1998 (NBS, 1998a, 1999a). The other form of unemployment consists of laid-off workers. Unlike the definition used in Western countries, laid-off workers in urban China are employees who left enterprises and go home due to downsizing of SOEs or collective-owned enterprises but they still maintain nominal labor relations with their work units. …