Case for recovery without job losses

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By Liu Yuanchun (China Daily)
Updated: 2009-06-30 07:54

There is talk among the Chinese public about the increasing unemployment. Since China's economic stimulus plans concentrate mainly on capital-intensive industries rather than labor-intensive ones, the prospect of an "economic recovery without employment" is looming large. This makes unemployment a problem that may not be relieved through economic growth.

Now it is rather difficult to obtain statistics showing the entire picture of unemployment. Based on the employment elasticity and the input-output method, the Renmin University of China estimates that the number of unemployed in the non-agricultural sectors will surge to 36.5 million this year. The new unemployed will mainly consist of migrant workers from rural areas, fresh college graduates, and demobilized soldiers.

Unemployment will directly lead to slippage of consumption, and persistent unemployment will increasingly drag the economy down. The rise in the rate of unemployment will dent people's income and dampen their confidence to spend, making consumption decline. We forecast that the vicious circle of unemployment and consumption slippage will gain momentum in the coming months and threaten the economy with another bout of slump.

According to studies on the history of economic crises, the culprits responsible for the loss of confidence were the persistent surges in unemployment rates.

Today a whiff of optimism is spreading among the people because of the economic stimulus plans and the guidance provided by the media. But persistent unemployment, which may cause decline of incomes, slump in consumption as well as many social problems, might reverse the current overly upbeat mood.

The unemployment rate is tricky. It usually lags behind the GDP figure for one and a half year to two years. Therefore the rise in unemployment rates tends to last for a rather long time even after the GDP growth has been stabilized.

In the circumstances, how shall we deal with the problem of a recovery without jobs? The first thing that needs to be done is to facilitate employment through the economic stimulus policies.

The current economic plans are mainly investment oriented, i.e. raising investments in heavy industries. Since these industries are mostly capital-intensive, they cannot create too much employment.

Hence, it is high time that stimulus packages were made more employment oriented. The local authorities should formulate effective measures and build employment platforms for creating more jobs. The problems of unemployed migrant workers and new graduates require more attention and effort, too. They should seek to achieve the targets announced in the National People's Congress this year: Creating 9 million new jobs in the urban areas and containing the urban registered unemployment rate within 4.6 percent.

Second, studies show that non-State-owned enterprises have higher employment elasticity. Hence, we suggest that the government, when implementing its 4-trillion-yuan ($586 billion) stimulus plans, should offer more help to the medium and small private enterprises and labor-intensive sectors, which are the main contributors to job creation.

In fact, 90 percent of the 4- trillion-yuan stimulus packages are allocated to the State-owned large and medium enterprises. We suggest the government should let both the non-State-owned enterprises and the State-owned ones share the opportunities of economic growth through transparent and open procurement and bidding process. If the non-State-owned firms also benefit from the stimulus packages, employment would get a boost.

The central government should design an incentive mechanism to transform the achievements in economic growth into job creation, and provide more growth opportunities to private firms.

Third, the government should offer unemployment benefits and assist the unemployed in finding new jobs, for preventing the decline of economic confidence.

Hence, the structure of governmental expenditure should be adjusted such as to provide more public funds for unemployment benefits and assistance. The government should change its goal from "raise employment and secure stability" to "strengthen the social safety net and secure stability". In all likelihood, we may have to face a long period of surging unemployment amid the "recovery", and "growth without employment".

The author is a professor of economics with the Renmin University of China

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