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The Effect of Labor Reallocation and Economic Growth in China

Shengqin Wu (), Degang Yang (), Fuqiang Xia (), Xinhuan Zhang (), Jinwei Huo (), Tianyi Cai () and Jing Sun ()
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Shengqin Wu: State Key Laboratory of Desert and Oasis Ecology, Xinjiang Institute of Ecology and Geography, Chinese Academy of Sciences, Urumqi 830011, China
Degang Yang: State Key Laboratory of Desert and Oasis Ecology, Xinjiang Institute of Ecology and Geography, Chinese Academy of Sciences, Urumqi 830011, China
Fuqiang Xia: State Key Laboratory of Desert and Oasis Ecology, Xinjiang Institute of Ecology and Geography, Chinese Academy of Sciences, Urumqi 830011, China
Xinhuan Zhang: State Key Laboratory of Desert and Oasis Ecology, Xinjiang Institute of Ecology and Geography, Chinese Academy of Sciences, Urumqi 830011, China
Jinwei Huo: State Key Laboratory of Desert and Oasis Ecology, Xinjiang Institute of Ecology and Geography, Chinese Academy of Sciences, Urumqi 830011, China
Tianyi Cai: State Key Laboratory of Desert and Oasis Ecology, Xinjiang Institute of Ecology and Geography, Chinese Academy of Sciences, Urumqi 830011, China
Jing Sun: State Key Laboratory of Desert and Oasis Ecology, Xinjiang Institute of Ecology and Geography, Chinese Academy of Sciences, Urumqi 830011, China

Sustainability, 2022, vol. 14, issue 7, 1-22

Abstract: In recent years, China’s economic growth rate has slowed down significantly, exceeding the normal range of cyclical fluctuations in terms of declining rate and period. However, the research on the structural problems of the economic slowdown from the sector level is still limited. This paper uses a novel index decomposition method to decompose the covariant effect according to the influence of factors. It separates the labor input effect (LIE), labor reallocation effect (LRE), and labor productivity effect (LPE) from China’s economic growth rate from 1989 to 2019. The evolving characteristics and influence of these effects are revealed. It also focuses on the structural problems of the economic slowdown caused by the LRE. The study found that: (i) the economic contribution rate of LIE declined during the study period and had recently shown a negative value; (ii) the economic contribution rate of LRE peaked in 2014 and then rapidly declined; (iii) LPE has always been an essential contributor to China’s economic growth, with an annual contribution rate of 80%. The key factors behind China’s downward economic growth are the decline of the new labor force input, the weakening of LRE, and the technological progress rate in some sectors that have declined. The analysis of the LRE found that 37% of the economic slowdown could be explained by it. The reason behind economic slowdown lies in how the labor force transfers: (i) from agriculture to non-modern services without manufacturing; and (ii) from high-productivity sectors (usually manufacturing) to low-productivity sectors (usually non-modern services). In order to reduce the downward pressure of economic growth, future development intervention measures should focus on improving the employment absorption capacity of manufacturing, enabling enterprise innovation, correcting distorted industrial development policies, and prudently treating environmental protection policies and industrial upgrading policies.

Keywords: economic growth rate; structural transformation; labor reallocation; labor productivity; manufacturing; non-modern services; development policy; developing economies (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2022
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