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China

UBS: Unemployment unlikely to cause unrest in China

By thomascrampton ⋅ January 7, 2009 ⋅ Post a comment

Wang Tao of UBS today offers his her view on recent reports in China’s state-run media that rising unemployment could spark unrest.

Wang strongly disagrees.

Urban unemployment has declined significantly in recent years and the nature of the current job losses are different from 1998.

UPDATE: Rich Brubaker at All Roads Lead to China has an interesting posting contrasting Wang Tao’s view with that of Victor Shih.

Scale of current job losses is not unprecedented
Between 1997 and 2002, about 35 million urban workers were laid off (Xiagang), of which about 28 million were state-owned enterprise workers. At that time, China went through a painful period of SOE restructuring just after the economic boom in the mid-1990s collapsed, and the Asian financial crisis (and later the burst of the ‘dot com’ bubble) slowed China’s export growth significantly. Most of those laid off workers were not counted as unemploymed, and they were given minimum living allowance or entered into early retirement. Adjusting for Xiagang workers, we estimate that the actual unemployment rate was more than 10% in the early part of this decade (Chart 1). In addition, a total of 20 million migrant workers returned to the agricultural sector between 1998 and 2002, for lack of jobs elsewhere.

Job losses in 2008 are cyclical, not structural like 1998
This time around, job losses are expected to be mostly cyclical, and there is no major SOE restructuring in the pipeline. Migrant workers, the biggest category of potential job losers, are less organized compared to SOE workers 10 years ago, and in most cases, have a plot of family land as a social safety net. Even if many migrants do not know how to work the land and cannot be absorbed in agriculture, they can be provided by their family, at least for a while.

Government has shown it is prepared to take action
Compared to 10 years ago, the government is in a much better fiscal position to deliver relief for unemployed workers, help pay wage arrears, increase spending in rural areas and subsidies to the poor. Policies promoting growth, including more spending on infrastructure construction, and growth in the rural areas and labour intensive industries, should also help to absorb some of the unemployed. The scale of job losses, as large as it might be, is not really unprecedented in China. Most of the migrant workers do have a family plot of land to fall back to in the rural area. In addition, the government has resources and is expected to try to mitigate the pain of job losses and stabilize income and consumption.

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Comments for “UBS: Unemployment unlikely to cause unrest in China”

  • Everyone is expecting recession getting over soon. I have a very close friend, who graduated from Harvard. Worked for ML for over 8 years, recently he’s been “right sized” too, despite of his outstanding performance and the increasing revenue he generated. OMG, now the banking industry is badly hurt, how long it would take for those financial background guys like him get back to the job market. Banking jobs are not there as much as before as easily seen on http://www.joboutlets.com and other job sites in the region
  • Thanks! I will update the posting. Not yet had the pleasure of meeting her.
  • Justfortherecord
    Wang Tao is a woman.
  • Thomas.

    What is funny about this is that an hour later in Wang Tao's next email, How Will China Grow? Part 2: Export slowdown, reverse migration, and urbanization, said the following:

    Will this cause social instability?
    The job losses could be severe and localized unrest could rise sharply. The size of job losses is not unprecedented, and the government has resources to improve social safety net and pay wage arrears. We think large-scale social unrest is unlikely.


    My personal belief is that they are severely underestimating the numbers, and are not fully appreciating the impact that this will have.

    Within the major cities, these communities are a micro-economy (in Shanghai, 7 million or the 20 million residents are migrant), and the impact on this could be at a Detroit level depending on how a particular community of migrant workers is structured. These are not people intermixed among the greater population, they live in very concentrated numbers and a much larger economy exists beyond the factory walls.

    R
    www.allroadsleadtochina.com
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thomascramptonconf

Thomas Crampton was a correspondent for the International Herald Tribune and The New York Times for more than a decade, reporting from five continents, writing a column on Asia and covering Asian politics, economics and culture. Currently based in Hong Kong, he writes here about China, the Internet and New Media seen from Asia, while also advising companies on digital communication strategies. For more information click here...