International | Mar 17 2008
By Chris Shaw
Hundreds of millions of workers in China are yet to make the shift from rural to urban areas, meaning there is an almost endless supply of workers available for companies to expand their operations, or so the general view goes.
This supply of labour also keeps wages down, as there is always another worker available for a job and so there is little reason to increase how much each worker is being paid, which is one of the factors supporting the global deflation enjoyed by most of the world in recent years as cheap Chinese labout kept prices for manufactured goods down.
A recent academic study suggests this theory of surplus labour in agricultural areas of China may actually be flawed and the situation is somewhat different to what has been used as a base for assumptions on the outlook for the Chinese economy.
The study, by Fang Cai and Meiyan Wang of the Chinese Academy of Social Sciences, suggests statistical data show there is actually little if any surplus labour in agricultural regions in China and this has implications for technology, productivity and rural-urban income gaps and so may have a bearing on Chinese economic policy going forward.
On one analysis the group estimates around 180 million workers are needed to maintain productivity levels in the agricultural sector but in 2005/06 there were only around 170 million in the sector’s labour force, which implies no surplus labour.
Even using different assumptions and allowing for the difficulties of obtaining accurate datas with respect to the rural labour force in China the researchers find the market appears to be significantly tighter than is generally accepted.
There are a number of implications of the pair’s findings, one being the technological advances being implemented in the agricultural sector are concentrated on labour saving as a primary objective. This implies productivity in the agricultural sector, widely considered to be quite low at least in comparison to the urban sector, is actually higher than most assume.
With better than expected productivity there is a lower income gap between rural and urban residents, especially as many urban workers escape the reporting system in place and this means a higher number of workers than official figures suggest, which in turn implies lower productivity in the urban sector.
The pair’s conclusion is the challenges facing the Chinese government as it attempts to reform and develop the rural sector are greater than previously expected, especially if agricultural productivity is higher than generally accepted this implies less incentive for workers to remain in the sector.
As well they suggest more needs to be done in terms of benefits for migrants moving from the rural to the urban sectors, as a continuation of this migration is important in continuing to drive growth as a whole as it is helping reduce the income gaps between the various sectors of the economy.
