With China Slowing, Faster Reforms Critical to Generate Jobs

IMF Blog, September 16, 2015

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Newly-created urban jobs reached 13.6 million in 2014.
The first half of 2015 saw an additional 7.1 million new urban jobs created—on track to reach the government’s official target of 10 million new jobs for the year.
Wage growth has been slowing, but remains about 8 percent in the first half of this year, largely in line with nominal GDP growth.
The official registered unemployment rate held steady at about 4 percent.
The surveyed unemployment rate held steady at about 5.0-5.1 percent.
High-frequency employment indicators in the purchasing managers’ indices (PMI) showed signs of softening up to August 2015, but broader labor market conditions have held up fairly well.

Expanding services sector:
- Accounted for close to 40 percent of the labor force in 2014.
- Contributed to 48 percent of value-added in 2014, surpassing manufacturing.
- Typically more labor-intensive and creates jobs for people from rural areas.
Urbanization and demographic trends:
- Long-term trends, such as urbanization, tend to support employment growth.
- Less surplus labor from demographic changes such as labor force growth reduces pressures on employment.
Migrant flows and SOEs as buffers:
- Rural–urban migrant flows are generally not fully reflected in unemployment data but may act as a shock absorber.
- Migrant flows grew more slowly in 2014 (year-over-year), in line with the growth slowdown.
- State-owned enterprises (SOEs) are keeping workers formally employed despite overcapacity and weakening profitability, particularly in provinces that rely on heavy industries.

Labor market data in China have significant limitations in coverage, frequency, and timeliness.
These shortcomings make accurate, up-to-date assessment of labor market conditions difficult.
The government is taking steps to improve statistics by expanding the coverage of surveyed unemployment to include all cities.

Implementing reforms will likely slow near-term growth further and could raise the unemployment rate temporarily.
Analysis suggests the risk to employment is modest and manageable when reforms are supported by strong safety nets.
Scenario with steadfast reform implementation:
- Medium‑term growth staying around 6–6½ percent could allow net urban employment to stay near 10 million per year—meeting the government’s current policy target.
Near-term consequences of stepped-up SOE reforms and capacity adjustments:
- Would release excess labor and push up the unemployment rate in the near term.
- Would facilitate structural transformation, including service sector expansion and new investment in productive enterprise, toward a more sustainable growth path.

Continue and accelerate reform implementation to move toward a safer and more sustainable growth path.
Provide well-targeted, on-budget support to employees affected by SOE restructuring and sectoral adjustments to facilitate labor market adjustment and protect livelihoods.
Strengthen the social safety net to support workers during the transformation and to raise productivity over the medium term.
Improve labor market statistics—expand coverage, frequency, and timeliness—to inform policymaking and accurately assess labor market conditions.

IMF Blog — With China Slowing, Faster Reforms Critical to Generate Jobs (September 16, 2015).