Rising Jobless Rate a Test for Government: Commentary

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Last updated at: (Beijing Time) Friday, August 15, 2003

Rising Jobless Rate a Test for Government: Commentary

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The rising level of unemployment is testing the government's ability to generate the over 20 million new jobs needed each year to cover natural increase in the workforce, surplus farm labour and the jobs needed for workers idled as a result of the restructuring of State-owned enterprises (SOE).

Some 4.1 million workers had been laid off in SOEs along with 2 million or so from non-State enterprises by the end of 2002.

The re-employment rate for laid-off workers slid from 42 per cent in 1999 to 36 per cent in 2000 and 30 per cent in 2001.

The registered jobless in cities reached 7.1 million, or 4 per cent of the overall labour force, by the end of last year.

In rural areas, more than 100 million surplus farm labourers need to be fed, requiring a minimum 10 million non-farm jobs each year.

To create satisfactory job opportunities for demobilized servicemen and civil servants who are left without work as a result of reshuffles in the civil service is also a touchy job.

By most experts' reckoning, China will need more than 23 million non-farm jobs each year to satisfy this grave demand.

However, only 8.35 million new jobs were created each year over the past five years -- even with a 7.7 per cent average annual GDP (gross domestic product) growth rate.

This is clearly a major factor in the slowdown in employment of farm labour and re-employment of laid-off workers in recent years.

Unlike most countries where unemployment is coupled with recession, unemployment in China stands in stark contrast to the country's robust economic growth. There are a number of special reasons for this.

China's transition from a planned to a market economy over the past decade has broken the life-long employment system in State companies and other urban enterprises, resulting in millions of workers being laid off.

As a result of the loosening of rural-urban movement, surplus rural labourers flooded into the cities, widening the gap between labour supply and demand.

It is a positive and necessary change that market reforms remove the practices that eased latent unemployment pressures in the era of the planned economy.

A key point in achieving this is making sure that the jobless rate is controlled within an acceptable range that does not harm economic growth and social stability.

Although the re-employment of laid-off members of the urban workforce remains a thorny problem at present, it is likely to be defused as the reform of SOEs is furthered.

The really challenging tasks are finding ways to absorb the natural increase in the workforce and the flow of farm labour to cities, which will continue well into the future.

With a per capita GDP of less than US$1,000 and half of its labour force in agriculture, China is yet to enter the stage of full industrialization, which traditionally generates large numbers of manufacturing and service job opportunities.

However, the wide use of information technology has cut back on employment in the industrial sector.

It is notable that jobs in domestic manufacturing enterprises declined from 98 million in 1995 to 80.8 million in 2001.

New technologies not only promote productivity but also allow employers to cut down on jobs.

With the speed-up of technological innovation the job-making capability of the manufacturing sector is not likely to rise significantly in the near term.

An index of unbalanced development in the country, the employment situation is closely related to factors such as education and regional economic strength.

The picture in key cities and wealthy coastal area looks better than in the less fortunate western and central provinces.

While there is a huge surplus of unskilled workers, there is a clear shortage of professionals and senior engineers.

The unemployment issue is a result of China's historic economic restructuring and finding a way to address it is crucial to the country's future.

The grave unemployment situation will be around for a very long time, in that the population will be increasing by about 8 million a year by 2010 despite a slowdown in births.

Therefore, an "employment first'' line should be emphasized in China's long-term development strategy.

Employment increases are based on economic prosperity. Although China's economy has kept moving forward quickly, some growth potentials are yet to be fully tapped.

The astronomical excess of deposits in bank accounts indicates that a lot of capital is laying idle and that the investment capital-to-earning ratio needs to be raised.

Room for a higher economic growth rate does exist.

To tap the labour resources the government should unswervingly foster labour-intensive trades and try to enhance the international competitiveness of the products these trades produce.

A sound labour market also needs to be developed.

When working in cities, rural labourers still suffer discriminative treatment in many areas, including residence registration, social security and schooling for their children, which has hindered the flow of labour.

The government should eradicate barriers to employing labourers from outside and build an open and competitive labour market.

Fostering the service sector and small firms is also an important option in easing unemployment.

The service sector could be a big job generator in the future. But its share in China's GDP is presently less than 35 per cent.

The development of intermediary services, such as financing, insurance and logistics, will lead to the creation of many more jobs than such sectors are generating at present.

The experience of foreign countries has proven that small firms can be very helpful in expanding the job market.

The government should lift the ban on small firms' access to industries monopolized by large SOEs and reduce the red tape which still curbs the growth of small firms.

It can encourage the creation of small firms to hire laid-off workers with preferential policies such as loan guarantees or interest discounts.

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