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Labour Market Informality and Economic Transition_ Employment .._2_

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Labour Market Informality and Economic Transition_ Employment .._2_ Powered By Docstoc
					Albert Park, Professor of Economics, University of Oxford
   Industrialization and balanced growth
   Rural enterprise development
     Comparison with Taiwan
   Opening to the outside world
   Migration and urbanization
   Labor regulation and labor market
    informality
   Conclusions: lessons for Mozambique
   Agriculture contributes to industrial growth
     Keeps food prices and industrial wages low
     Agricultural growth increases demand for industrial
      goods through rising income and demand for inputs
     Savings from rural income can help finance industrial
      investment
     Higher agricultural productivity releases labor for
      industry
   Implication: investments in agriculture and
    improved incentives/higher prices can fuel
    industrial growth
                  Millions of workers                                Share of national employment
200                                                         0.3

180
                                                           0.25
160

140
                                                            0.2
120

100                                                        0.15

80
                                                            0.1
60

40
                                                           0.05
20

 0                                                           0
  1975    1980   1985   1990   1995   2000   2005   2010      1975   1980   1985   1990   1995   2000   2005   2010



      By the mid-1990s, rural enterprises accounted for 20 percent of national employment ,
      28 percent of industrial output, and 48 percent of exports
“All sorts of small enterprises boomed in the countryside, as if
 a strange army appeared suddenly from nowhere.” Their
 emergence “was not something I had thought about. Nor
 had the other comrades. This surprised us.”

                           --Deng Xiaoping in 1987
   Initial reforms in agriculture raised prices, improved
    incentives, and increased rural incomes
     Gradual market liberalization eased tradeoff between
      agricultural prices and urban wages
 Free entry into new market niches, with little
  regulation or taxation
 Relatively undistorted output and input prices
 Well-educated labor force
 Active leadership by local government leaders
     Collective ownership (township and village enterprises, or
      TVEs) until the mid-1990s, followed by widespread
      privatization
   “Rural” industry heavily concentrated in
    coastal areas, peri-urban areas
     Many failed government efforts to replicate
      success of TVEs in interior regions
     High administrative decentralization led to
      excessive dispersion of industrial activity
     More recently, enterprises have become more
      spatially concentrated in peri-urban locations,
      often in industrial clusters
   Initially, the government was skeptical that
    Taiwanese firms could produce goods of
    sufficient quality to export
     One survey in the early 1950s found that only 241
      of 400 factories and 337 of 600 products passed
      minimum quality standards
     Led to early protectionist period (1953-62), focus
      on domestic market
SME share of manufacturing consistently high, also key to service sector
   Rapid growth of rural incomes and domestic
    demand in early stages (with protectionism)
   Non-distortionary macroeconomic policies
    encouraged labor-intensive production
   Well-educated labor force
   Active government role in developing new
    technologies in agriculture and industry
   Major infrastructure projects facilitated
    growth with equity (unlike China)
   Since 1979 when Deng normalized diplomatic
    relations, China has been committed to opening
    its economy to the world
       1979 Foreign Direct Investment law
       Permissive emigration policies
       Gradual trade liberalization
       WTO accession agreements unprecedented in
        opening domestic markets to foreign competition
   This approach was courageous, it prioritized
    gains from globalization (esp. technology
    transfer) over risks from foreign competition
 Income tax rate of 15 percent
 No income tax-first 2 profitable years
 50 percent less income tax-years 3-5
 More tax benefits for large investments (over $5
  million)
 Imported inputs (and some consumption goods)
  exempt from duties
 No export duties
 Free remittance (after tax)
   4 Special Economic Zones, 1981-85
   16 Open Coastal Cities, 1984
   288 Open Coastal Cities, 1988

   Limited early success….
   ….until the 1990s
   Strong infrastructure
   Preferential policies, including taxation, land
    rights, less regulation
   Focus on exports, joint ventures
   Provincial-level authority in economic
    administration
100

90

80

 70

60

 50

40

 30

20

 10

 0
  1985   1990   1995   2000   2005   2010
   Red tape, legal environment, price distortions
    for inputs, overvaluation, political risk
   Early FDI mostly in tourist and property
    sectors, not export-oriented
   Difficulty attracting high tech firms (2/3
    simple labor-assembly)
   Eventual success attributable to persistence,
    willingness to experiment, patience
   Estimated 130-150 million rural migrants in
    urban areas today
     In 2003, migrants accounted for 21% of rural
     workforce, 29% of rural income. 43% of rural
     population lives in a family with at least one
     migrant
   Barriers to migration have eased over time,
    but migrants still receive unequal treatment
    and most work in the informal sector
Number of rural migrant




                    120
                                                                                                102.6
                                                                                         98.3
                    100
     (millions)




                                                                                  84.0
      workers




                                                                        78.5
                          80
                                                               61.3
                          60                49.4     52.0
                                  38.9
                          40

                          20

                          0
                                  1997     1998      1999      2000     2001      2002   2003   2004


                               Migration has fueled rapid urbanization in China
1600
                        NBS          RCRE         PBC


1400

                                                                                1221
1200
                                                                        1140

1000

                                                                 953
                                                        889
 800                                        821
        644   666                756
                        703
 600
       2001   2002   2003     2004      2005       2006       2007     2008    2009

 NBS=National Bureau of Statistics
 RCRE=Research Center for Rural Economy (Ministry of Agriculture)
 PBC=People’s Bank of China
100.0

90.0

80.0

 70.0

60.0
        Public
 50.0   Non-public
40.0    Self-employed

 30.0   Unregistered

 20.0

 10.0

  0.0
   1994 Labor Law
     Established basic conditions for employer-worker relations,
      including minimum wage, overtime pay, labor contract, social
      insurance provision, etc.

   2008 Labor Contract Law
     Provided greater employment security. After 2 fixed-term
      contracts, or 10 years of employment, contract must be open-
      ended
     Increased severance pay (one month’s pay for each year of
      service)
     Internationally, law considered highly protective of workers
After long period of steadily increasing informality, notable reduction in
Informality since 2005.
   Flexible labor regulation likely contributed to
    employment gains during the period of labor-
    intensive manufacturing
   New regulations arose when labor became
    scarce and China began shifting to higher
    value added products
   Stricter labor regulations reflect rising
    societal aspirations but could constrain
    employment in the future
   China’s experience included failures as well as successes,
    but pragmatic approach was consistent
     Gradualist reforms
     Experimentation
     Strong motivation of local leaders

   Industrial development success factors
       Agricultural growth
       External openness and outward orientation
       Investments in human capital
       Undistorted output and input prices
       Active government leadership
       Appropriate labor regulations for different development stages

				
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