12 - Reforming China's labour market

Summary

This book has examined various aspects of labour market reform in China over the period of the economic evolution towards a market economy. This chapter summarises the main findings of the book and its contributions to enriching our understanding of Chinese labour market reform.

Problems with pre-reform labour arrangements

For nearly half a century China did not have labour markets in the conventional sense. These started to emerge only following the economic reform that began in 1978. The main characteristics of the country's labour arrangements before that were the segregation of the rural and urban economies, the extreme immobility of labour and the disincentives implanted in the income distribution system. The separation of the rural and urban economies eliminated possible economic gains from efficient labour allocation. Within each sector, the immobility of labour resulted in serious problems of hidden unemployment and low productivity. The situation was made worse by the way income was determined in both the rural and urban economies.

In the countryside, income distribution followed a work point system, where an individual's work points were evaluated against each day of work among the members of the team. At the end of each year, the net distributable income of the production team was divided by the total work points earned by all members. This system separated individual effort and the distribution of benefits – an individual's earnings were not only determined by his/her own efforts but also by the efforts of other members of his/her team.