Has Chinese Growth Been Jobless?

The standard narrative about the modern China is dominated by its meteoric economic growth trajectory. Unlike other growth stories – where economies soar but people don’t reap the gains – Chinese growth is thought to have had a major impact on well-being: higher life expectancy, social and economic mobility, and improved quality of life (with the important exception of people’s natural environment). Most importantly, the accepted wisdom is that growth gains have translated into more jobs for Chinese people.

Attempting to debunk the general perception, London School of Economics professor Keyu Jin made a provocative argument recently in The Japan Times:

“In fact, one of the most baffling features of China’s economic rise is that, even amid double-digit GDP growth, employment grew at a measly 1.8 percent average annual rate from 1978 to 2004.”

So is Dr. Jin right? Have we all been duped by a giant myth about Chinese job creation? The short answer is no.

Much is problematic about her statement. The first point is a matter of arithmetic. Assuming that year-to-year growth is always positive, even a very small but constant annual growth can compound to a significant gain. Say, for example, a country began with an employment rate of 90 percent (10 percent unemployment). Annual employment growth of only 0.5 percent will generate full employment in less than 20 years. Jin conjures a misleading image by juxtaposing a small number (average gains in employment) with a much bigger one (growth in GDP).

The other unstated implication of Jin’s statement is that the staggering and sustained gains in Chinese GDP growth have been of little consequence for the country’s unemployed. Does this add up when we look at the figures? Let’s look at China’s unemployment rate between 1992 and 2013 and the corresponding growth in real GDP.

Data Source: World Bank; graph by the author.

Running some basic statistical tests shows that the rise of GDP and the fall of unemployment are highly correlated in China,[i] dispelling Jin’s controversial assertion that China’s economic growth has had little impact on the employment situation.

Jin goes on to advance another very counter-intuitive claim: that China’s focus on manufacturing has been the reason why “households […] have largely missed out on the benefits of economic development in China.” Again, numbers do not support her claim: industry’s share of total employment went up from 18 percent in 1980 to more than 29 percent in 2011. This can only happen if industries were growing and adding more jobs.

She advocates a greater focus on the services sector arguing, correctly, that services account for the bulk of employment in developed economies. Indeed, even in China services account for the bulk of employment, at about 38 percent in 2011. The point Jin fails to mention is China’s remarkable growth was built and sustained on exports and international trade. Services in emerging economies are typically non-tradable, meaning growth in that sector is driven by domestic consumption. China can now shift its attention to services, but only because it used manufacturing jobs to build a large domestic market it didn’t have 30 years ago.

One of contemporary China’s great success stories – replicate with uncertain success.

[i] For the record: the two are negatively correlated with a correlation coefficient of almost 0.7. A regression analysis on the same data set reveals that a 1 percent growth in real GDP leads to more than 5 percent decrease in unemployment rate (numbers that are statistically significant).