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The following OECD assessment and recommendations summarise chapter 6 of the Economic Survey of China published on 2 February 2010.
The labour market has been resilient over the past two years
The labour market has proved to be remarkably resilient in the face of the economic slowdown, notwithstanding the scale of layoffs a year ago and the attendant fears of mass unemployment. Employment contracted during a few months in late 2008 and early 2009, but has since started to expand anew, albeit at a less buoyant pace. The migrants who lost their urban jobs in large numbers in late 2008 had almost all found new urban employment by mid 2009, although not necessarily in the same workplace. This turnaround, which is far swifter than in many OECD countries, reflects the bounceback in activity as well as wage moderation, in particular migrants’ readiness to accept sizeable wage cuts.
New labour laws were introduced in 2008
A set of new labour laws was introduced in 2008, replacing legislation from 1995 that needed to be adapted to current market realities. The objective was to better protect employees in a market that is now dominated by private-sector employers. This has involved more systematic use of labour contracts to ensure that all employers adhere to basic employee rights such as being paid on time. However, the government has underlined that the law is not meant to create life-time employment. The new law may also increase firms’ costs insofar as it leads to greater compliance with minimum wage, hours worked and social security legislation. In principle, individual employees will find it easier to have their rights recognised, even if enforcing any resulting judgement may be difficult. As in other areas, the extent to which the new legislation and implementing regulations will be enforced is of key importance. Currently, the power of labour inspectors to penalise companies is very limited. For the time being, de facto employment protection remains far less than de jure, with still a preponderance of fixed-term contracts involving few restrictions. In implementing the new laws, it will be important to avoid making open-ended contracts too rigid, which would only entrench labour market dualism.
Labour market segmentation hinders labour mobility and needs to be reduced
While the restrictions associated with the registration (hukou) system have been eased over time, especially in the inland and Western regions, they still segment the labour market, impeding geographical mobility and splitting families. In larger towns, migrants can now register as temporary residents but without the same rights as permanent ones. The government emphasises that migrant children need to receive education in towns but, in reality, a large share of migrants’ children are left behind with grandparents and regulations still stipulate that university admission examinations be taken in the locality of the student’s hukou, based on the local syllabus. The local registration system needs to be phased out to end not just the distinction between the rural and urban populations in one locality, but also the distinctions between localities and provinces. More pilot programmes ought to be initiated in major Eastern cities easing local registration and hence access to social benefits such as education, subsidised rental housing and local medical insurance on the same basis as local residents. Extra grants from central or provincial governments may be needed to that effect. Other concurrent policy changes may also be called for. In particular, realistic compensation needs to be paid to the owners of land use-rights when the latter are purchased by the government.
Composition of non-agricultural employment
% of total rural and urban non-agricultural employment
Source: China Statistical Yearbook and CEIC.
How to obtain this publication
The complete edition of the Economic Survey of China is available from:
The Policy Brief (pdf format) can be downloaded in English. It contains the OECD assessment and recommendations.
For further information please contact the China Desk at the OECD Economics Department at firstname.lastname@example.org.
The OECD Secretariat's report was prepared by Richard Herd, Samuel Hill and Yu-Wei Hu under the supervision of Vincent Koen. Research assistance was provided by Thomas Chalaux.