Chinese employment

http://www.chinadaily.com.cn/business/2012-11/13/content_15921234.htm
The China’s labor market is facing big pressure from exceeding supply of labor. In 2012, there are nearly 7 million college graduates enter the job market, yet there is no new job created for the majority of urbanities and migrant workers. According to the official data, the unemployment rate in September is 4.1 percent, which is lower than the official ceiling 4.6 percent this year. In other to reduce the unemployment problem the country created 10.24 million new jobs in urban areas in the first nine months, and the government now is encouraging college students to work in the central-western regions or start their own businesses, on the other hand offer training for unskilled workers.

Unemployment refers to people of working age who are actively looking for a job but who are not employed. In China’s labor market, the unemployment group takes a big part of the labor force, which means the unemployment rate is high, since unemployment rate=(number of unemployed)/(labor force)×100%. In the article, it says, China will continue to face the problem of labor oversupply for a long time. This can be explained in the following diagram. After the college student graduate, they enter the job market, which increase the supply of the labor market. That shifts the supply curve from S1 to S2. However since the article says, “the new job growth slows”, we can assume that the demand curve of labor stays the same. So, before the large amount of labor enters the market, the supply curve and demand curve meet at point a, which provide Q1 quantity of employment at price P1. But since the supply curve shift to the right, the supply curve and demand curve meet at point b, which only provide Q2 amount of employment at price P2. There will be Q2-Q1amount of unemployment occur. The article also says “the government will encourage college students to work in the central-western regions or start their own businesses”. By starting their own businesses, college students will not compete in the existing job market, in stead create new jobs for the market, thus shift the demand curve to the left and increase the quantity of demand in labor market.

The article mentions that “migrant workers and unemployed urbanites still have difficulty getting full employment”, which is the typical structural unemployment. More and more job require particular types of labor skills, so that the producers are more likely to hire college students who have better educational background and might be more skillful in stead of hiring migrant workers and urbanites. In this case, workers lacking the necessary skills to work in industry or services, including the China’s migrant workers and urbanites, might be structural unemployed. In order to solve the structural unemployment, the government decided to use supply-side policies.

The government is going to increase spending on training workers to improve their skills, which is interventionist supply-side policy. Because more and better training and education lead to improvements in the quality of labor resources, the productivity of labor will be increased, thus encourage economic growth. If the government spends more money to train the migrant workers and urbanites, they will be able to do the work that require some level of skills, thus decrease the structural unemployment. The most obvious advantage of this policy is that it not only can solve the unemployment issue but also increases economic growth because it increases the labor’s productivity. However there are some disadvantages of this policy. First, the supply-side policy takes long time to show effect. Even though the government spends money to train workers, it still takes time for the workers to apply what they’ve learned during production. If the government wants to reduce the unemployment rate in short time, supply-side policy might not show significant outcomes. Second, supply-side policy is expensive. If the governments spend money to train unskilled workers, they need to cut spending on other program, that is when opportunity cost occurs. For example the money that could be used on military defense need to be reduced, so that the interventionist supply-side policy can be supported. So personally, I suggest the government combine the demand-side policies and supply-side policies, so that the cyclical unemployment problem can be solve most efficiently.

 

 

1 Comment »

  1. pattond Said,

    December 16, 2014 @ 12:46 am

    it’s crazy to think that despite all of the outsourcing we do in China, there is still a growing rate of unemployment. This article is a great example of opportunity cost….if the gov plans to train workers, spending must be cut from some other program, which could discourage economic growth.

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