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Labor Market: Occupational and Spatial Movements

Throughout the 1980s the large number of annual new entrants into the work- age population continued to exert significant job creation pressures on the state. Such pressures were further accentuated by the rise of the labor market and the concurrently changing occupational and spatial characteristics of the work-age population, especially the movement of the existing labor force out of farming. Under the prereform system the state controlled the deployment and organization of the entire workforce. The vast majority of working people were confined to agricultural activities, where productivity was low. Free movement of labor was strictly banned, especially between rural and urban areas, where the income gap widened because of the policy bias in resource allocation under central planning. Service activities in both urban and rural areas languished because of low income and concentration of investment in industrial activities, especially capital goods industries.

Table 2.3 shows that in 1978 more than three-quarters of the workforce were in rural areas, and 91% of rural working people were deployed in farming activities. Although receiving the bulk of government investment, the secondary sector only provided 17.3% of the jobs in the economy. The tertiary sector was the smallest employment provider, accounting for only 13.3% of the workforce. Overall, the labor distribution pattern in 1978 did not vary substantially from that in 1952, though a major difference is that the former was shaped mainly by state actions, whereas the latter reflected the state of the predominantly agrarian economy that the PRC inherited from history.

Decollectivization of agriculture during 1979-1983 created a push-and- pull effect on the allocation of the rural workforce, resulting in the rise and expansion of the labor market.11 The return to family farming and the dismantling of the commune system allowed peasants to make increasingly freer cropping choices and to keep much of the gains from work. They also broke the state’s monopoly on rural human resources. What followed was a major change in the incentive structure for peasants and a significant improvement in agricultural productivity (McMillan et al. 1989), thereby making available a sizable and growing number of surplus laborers for the pursuit of other activities. A study by the Ministry of Agriculture estimated that in 1985 surplus labor accounted for some 30%-50% of the agricultural workforce in most regions of the country, with the size of the surplus totaling 100 million (Lu Yu 2004, 552). On the other hand, the rising income from commercial farming boosted the demand for goods and services produced outside the economic space governed by government plans. From the periphery of the centrally planned economy, therefore, grew opportunities to deploy the surplus labor vacated from agriculture.

To capture and benefit from such opportunities, rural authorities promoted the development of publicly owned nonfarm enterprises, known as [1]

Table 2.3 Distribution of workforce in selected years





Sectoral share (%)




Rural breakdown (%)

Urban breakdown (%)





Public/private sector share in nonfarm workforce





















































Note: The primary sector includes agriculture, animal husbandry, fishery, forestry, and sidelines; the secondary sector includes industry (mining, manufacturing, and utilities excluding telecommunications) and construction; and the tertiary sector includes all service activities.

Sources: CSY1999, 2009, 2010; CSA 2012; SCTE; CTEAPPY2009; Liang and Ma 2002; National Population and Family Planning Commission (http://chinapop.;

commune and brigade enterprises (CBEs) before 1983 and township and village enterprise (TVEs) thereafter. These enterprises indeed played an important role in absorbing large numbers of working people transferred out of agriculture (Byrd and Lin 1990; Oi 1999). But they faced resource constraints (especially inadequate funding), lacked technology, and had limited and varying experiences in organization and management.[2] As a result, the jobs they created were insufficient to accommodate the large and fast-growing pool of rural laborers seeking nonfarm employment (Ma Jiesan 1991).[3] Private organizations had to be allowed to play a supplementary role and to expand beyond the initial size limit (of employing no more than seven persons) (Fei Kailong and Zuo Ping 1991).[4]

A major restriction faced by rural nonfarm enterprises during agricultural decollectivization is that their employees, like other rural residents, were not allowed to reside in what the government defined as “urban areas" even if their workplace was physically located there (in which case they had to commute between home and work). It was therefore difficult for rural residents to take up nonfarm employment far away from their home villages or to operate businesses (especially those related to urban services) in more densely populated areas. Fei Xiaotong (1983), a well-known sociologist who served as a vice chairman of the Standing Committee of the National People’s Congress, once characterized (and indeed praised) such spatially confined nonfarm employment as “working off the farm but living in the countryside" (litu bu lixiang). Yet this restriction hindered the spatial movement of labor and other resources to nonfarm enterprises.

In view of the mounting pressures for nonfarm employment that could not be adequately addressed within the rural sector, in 1984 the central government relaxed the restriction by allowing rural residents to both work and reside in urban areas on two conditions. First, they could only enter urban townships but not county seats or cities. Second, they were not eligible to receive any food subsidies—that is, a supply of grain at government- subsidized prices—that permanent urban residents were entitled to. Despite these limiting conditions, the lifting of the ban on rural-urban migration marked the beginning of a spreading process in which an increasing number of rural residents left their home villages to seek employment in urban places. The initial destinations were small towns. But it did not take long for the more daring and enterprising to break the rule of no entry into county seats and cities. By 1988 many cities, especially those in the coastal region, were faced with the influx of large numbers of rural migrants in search of economic opportunities.[5] Concerned about the overload of transportation and urban infrastructure, the difficulties of enforcing family planning among migrants, and the social problems (such as crimes) associated with uncontrolled migration, the central government issued a series of directives during 1989-1992 to tighten regulatory enforcement and push the so-called floating population (liudongrenkou) back to the townships and rural communities in their home provinces.

The effects of these administrative measures were limited and faded quickly. They failed to deal with the fundamental driving forces behind economic migration, namely, the oversupply of labor in the countryside that could not be fully absorbed by nonfarm enterprises in the rural sector, and the wide income gap between rural and urban economies. Wherever the migrants were spatially oriented or channeled, they posed a growing challenge to the existing job creation capabilities of the local economies of their destinations, thereby casting a heavy shadow over government policymaking. At the same time, they also provided abundant supply of cheap labor for use by domestic and international private capital for profit making, thereby contributing to the expansion of the revenue bases of the local governments concerned. It is not surprising that in 1988 the central government removed the cap on the workforce size of privately owned economic entities. Despite the three- year retrenchment in economic reforms following the Tiananmen Incident in 1989, the private sector survived and continued to grow thereafter. With the

Number of persons in (intercounty) “floating population” (million persons), 1982-2010

FIGURE 2.4 Number of persons in (intercounty) “floating population” (million persons), 1982-2010

Note: Interpolation is used to fill in some of the data gaps.

Sources: Liang and Ma (2002); statistical summary of the 2005 1% sample survey of the population; statistical summary of the 2010 census. ( cgb/201104/t20110428_30327.html)

deepening of reform and opening following Deng Xiaoping’s southern tour in 1992, economic migration resumed its momentum and refocused on urban areas in more developed regions of the country. Figure 2.4 illustrates a steady upward trend throughout the decade and beyond. Along with it was a gradual process of further relaxation of restrictions on private economic activities, as discussed in chapter 1.

  • [1] For discussions of agricultural decollectivization and rural reforms, see Kelliher 1992; Yang 1996;and Zweig 1989.
  • [2] Local authorities in cities faced similar challenges throughout the 1980s. A major method they usedto create jobs for the returning youths from the countryside and for new secondary school graduates(who were no longer required to be rusticated after 1978) was to establish “labor service companies”(laodong fuwugongsi) in underdeveloped areas of urban services. Most of these companies were fundedand run by urban work units for the work-age children of their employees. Started in 1980, labor servicecompanies increased their workforce to 7.3 million in 1987 (He Guang 1990, 481), which was equivalentto some 28% of the urban residents with formally registered unemployment status during that period(LSYC2011, 46).
  • [3] According to statistics compiled by the Township Enterprise Bureau under the Ministry ofAgriculture (SCTE, 71-74, 104-108), TVEs (then called CBEs) accounted for the bulk of the annualnet gain in rural nonfarm jobs in 1979. But the contribution steadily declined. The percentage was 40%in 1986, 34% in 1993, and 19% in 1995. As of 1996 TVEs not only ceased to contribute to net job gainbut began to cut jobs. A similar pattern existed among urban public enterprises, which accounted for96%, 76%, and 11% of the net urban job gain in 1979, 1988, and 1990 respectively, and became net joblosers starting from 1995 (CSY 2010, 118).
  • [4] Before 1988 private nonfarm activities were either household-based or organized in the form of“joint household” operations with pooled familial resources.
  • [5] A widely cited estimate about the number of the migrants flocking to cities at that time is 30 million(Wei Jinsheng, Sheng Lang, and Tao Ying 2002).
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