BACKGROUND PAPER FOR THE

WORLD DEVELOPMENT REPORT 2013

China’s Labor Transition

and the Future of China’s
Rural Wages and
Employment

Scott Rozelle
Stanford University

Jikun Huang
Chinese Academy of Sciences
 February 5, 2012

Scott Rozelle, Professor, Food Security and the Environment, Freeman Spogli Institute, Stanford
University, Stanford, CA 94305.

Jikun Huang, Director, Center for Chinese Agricultural Policy, Institute of Geographical
Sciences and Natural Resources Research, Chinese Academy of Sciences, Beijing, China
100101.

The findings, interpretations, and conclusions expressed in this paper are entirely those of the
authors. They do not necessarily represent the views of the World Development Report 2013
team, the World Bank and its affiliated organizations, or those of the Executive Directors of the
World Bank or the governments they represent.
Table of Content page no.

Extended Abstract i

Part 1 China’s Labor Transition: The Empirical Trends 1

1,1 Introduction 1
1,2 Data 2
1,3 The Evolution of Rural Labor Markets in China 3
1,3.1 Disaggregating the Evolution of of Rural Labor Markets 4
1,3.2 Gender Effects of the Emergence of China’s Labor Markets 7
1,3.3 Summary of Empirical Findings on Rural Labor Markets 9
1,4 Implications for Future Rural Wages and Emploment 10
1,4.1 Finding Higher Value in Farming 10
1,4.2 China’s Army of the Self-employed 11
1,4.3 Women and their Families 12
1,4.4 Final Word: Higher Wages and Lots of Labor 13

Part 2 The Effect of Off-Farm/Migrant Employment on Household’s Decisions to Rent out 14

and Rent in Cultivated Land and on Investment in Home Communities in China
2,1 Introduction 14
2,2 Data 16
2,3 Off-farm Employment and Cultivated Land Rental Markets 17
2,4 Multivariate Analysis 18
2,4.1 Econometric Model 18
2,4.2 Estimation Approach 19
2,5 Results of Multivariate Analysis 20
2,6 Migration and Investment 21
2,6.1 Descriptive Results 21
2,6.1 Multivariate Results 22
2.7 Conclusions 25

Part 3 The Impact of the Global Financial Crisis on Off-farm Employment and Earnings in 26
Rural China
3,1 Introduction 26
3,2 Data 28
3,3 The Global Crisis and China’s Macro Performance and Vulnerabilities 29
3,3.1 Off-farm Employment Effects 29
3,3.2 Financial Crisis and Wages 32
3,4 Analysis of Laid-off Rural Workers 33
3,4.1 Determinants of Being Laid-off 34
3,4.2 Many Laid-off; Few Unemployed 35
3,5 Recovery: One Year after the Crisis 36
3,6 Conclusions 36

Part 4 Other Issues 38

4,1 Introduction 38
4,2 Can China Generate Enough Jobs? 38
4,2.1 Unemployment and Labor Force Participation 39
4,2.2 Employment of College Graduates 40
4,2.3 Industrial Policy, Financial Reform and the Demand for Labor 41
4,2.4 Demography and Labor Supply 42
4,3 Is China Becoming a Victim of Its Own Success? 42
Figures Figures 1 to 11 45
Tables Tables 1 to 19 57
Appendix Appendix Table 1 72
References References—Part 1 of the Report 73
References—Part 2 of the Report 76
References—Part 3 of the Report 78
Endnotes Endnotes for Part 1 of the Report 80
Endnotes for Part 2 of the Report 80
Endnotes for Part 3 of the Report 81
China’s Labor Transition and the Future of China’s Rural Wages and Employment

Extended Abstract

This report contributes to the assessment of China’s rural labor markets and conjectures
about the future of rural wages and employment. It also assesses/raises a number of issues
about China’s labor markets: including the impact of labor shifts on those left in rural areas
(land rental and investment); the response to the financial crisis (or 2008); and other issues
and challenges (in the urban labor markets and in human capital investment into poor rural
areas and China’s future stability and growth). We draw mostly on our own work (which is
almost all based on household survey data). In parts of the report, however, we supplement
our own analysis with work of others.

In the first part of the report, according to our household survey data, we find that the rapid
increase in off-farm employment that China experienced during the 1980s and 1990s has
continued and may have even accelerated during the first seven years of the 2000s. Our
analysis shows that migration has become—by far—the most prevalent off-farm activity.
There are, however, also increasing numbers of workers that are entering the off farm labor
market by becoming self-employed. Perhaps the most important finding in this part of the
report is revealed by analyzing the labor force participation rates by age cohort. According to
our analysis, more than 81 percent of 16 to 20 year olds (who are not in school) and more
than 80 percent of 20 to 30 year olds in the rural labor force now work in the off farm sector.
Increasingly these cohorts are working full time off the farm. While a relatively lower
proportion of the older cohorts work full time off the farm, it is safe to say from these figures
that the labor transition from the agricultural sector to the non-agricultural sector for key
segments of China’s rural labor force is nearly complete.

The second part of the report looks at the implications of the rapid changes to the labor
market. We find that cultivated land rental markets (not cultivated land sales markets—which
do not exist in China) are responding as labor shifts out of agriculture. We use a panel data in
2000 and 2008 and estimate the impact of off-farm employment on the household’s
cultivated land rental decisions. The results show that the emergence of off-farm employment
has significant and positive impacts on stimulating household to rent out cultivated land. The
effect is less prominent for renting in decision. Rental market is also found to be pro
productivity and pro equity. Drawing on a paper of ours from the early 2000s (using
household data up until 2000), we find that despite increased rentals, migration has not
resulted in greater investments into agriculture (the only positive and significant effects of
migration are investments into rural housing). This perhaps is due to the small size and labor
intensive nature of farms in China (despite more rental and marginally increasing farm size).
However, the result is particular strong for consumptive (or housing) investments in poor
areas, implying that migration is having a positive effect on consumption of the poor.
Unfortunately, we do have work that shows that the rising wage is having a negative effect
on secondary education, including leading to higher drop outs from junior high school.

In addition to being a source of employment (for both men and women) and for having a
positive effect on cultivated land rental and investment in poor areas, the emergence of

i
China’s off farm labor markets also has supplied resiliency to China’s economy during the
recent global financial crisis. The third section of this report examines the effect of the
financial crisis on off-farm employment of China's rural labor force. Using a national
representative dataset, we find that there was a large impact on rural workers. By April 2009
unemployment reached 6.8 percent of the rural labor force. Monthly earnings also declined.
However, while we estimate that 49 million were laid-off between October 2008 and April
2009, half of them were re-hired in off-farm work by April 2009. By August 2009, less than
2 percent of the rural labor force was unemployed due to the crisis. The robust recovery
appears to have helped avoid instability.

The final part of the report summarizes (in briefest terms) the findings of a review paper on
the urban labor force by Park, Cai and Du and a discussion of issues about the adverse effect
of rising wages on education in poor rural areas and the possible consequences for growth
and stability in China in the future.

The findings can be useful in illuminating several debates in the labor economics field. First,
although there may be a large share of China’s rural labor force that works in agriculture,
most of them are older men and women (and likely will not be willing to take low-wage,
labor-intensive jobs). In this sense, off farm (unskilled) rural labor markets must be
considered tight. Second, and related to the tightening of rural labor markets, the unskilled
wage rate in China is rising fast. For example, the unskilled wage rate increased by more than
10 percent a year between 2005 and 2006; and by more than 15 percent in 2011. This rise in
wages is almost certainly due to the tightening of the labor force in the young age cohorts.
Third, assuming China’s growth continues, since in the coming decade successive age
cohorts will continue to fall in absolute number (due to factors association with the one child
policy and other demographic transition forces), we should expect to see further wage
increases since it will take higher wages to coax more workers, including middle-aged
women and men to forgo their farm and non-farm self-employed enterprises (or at least
partially forego them) and take up wage-earning work off the farm. Fourth, while there is
inevitably a set of adverse social impacts (e.g., there is a rise in left-behind children and the
strains of family separation), our findings show that the economic effect on those left behind
is, in fact, mostly positive—on higher cultivated land rental and investment into housing.
Policy makers, however, need to worry about China becoming a victim of its own success if
families are choosing to pull their children out of school to take advantage of high unskilled
wages (despite the fact that workers in the future will likely need at least an upper secondary
education to remain gainfully employed). Finally, the nature of China rural labor markets has
also contributed to making the economy more resilient through recent global financial crises.

Key words: labor force participation; rural wages; China

JEL Codes: J2, O1, P2.

ii
 Part 1

China’s Labor Transition: The Empirical Trends

Part 1, 1. Introduction

Since the economic and political reforms began in China in the late 1970s, the nation has
experienced rapid economic growth. The expansion of the rural economy has driven a large part
of this growth (Putterman, 1992; Perkins, 1994). Rural labor markets have changed dramatically
over the past twenty years and their emergence has contributed to the success of the rural
economy (Solinger, 1999; West and Zhao, 2000; World Bank, 2001). Many observers of China
agree that the success of rural labor markets in helping to raise incomes and productivity can
account for a significant part of the rise in rural welfare (Parish, Zhe, and Li, 1995; Rozelle,
1996).

However, the rise of rural labor markets is more important than its role in providing rural
residents with a means to raise income (Todaro, 1976; Stark, 1976). For China to modernize, the
nation must rely on labor markets to facilitate the shift from a largely rural population to an
urban one. Without well-functioning labor markets, it will be difficult for the primary mode of
production to be shifted from agriculture to industry/service. Hence, the question of whether or
not rural labor markets have emerged in a way that will allow them to facilitate more effectively
the transformation of China’s economy is more important than only assessing their contribution
to rural income.

Although many researchers have contributed to the debate, scholars do not agree on the role that
labor markets have played so far in contributing to China’s economic growth. Some researchers
believe that significant barriers still exist in China’s economy, and that the absence of well-
functioning rural labor markets has hindered growth (e.g., Meng, 1990; 1996; Benjamin and
Brandt, 1997; Liu, Carter, and Yao, 1998; Mallee, 2000). In contrast, others believe that rural
labor markets are spearheading China’s drive towards modernization (Cook, 1999; Maurer-
Fazio, 1999; deBrauw and Rozelle, 2007; Lohmar, 1999; Knight and Song, 2001; Rozelle et al.,
1999). The disagreement may exist, in part, because most previous analyses consider only part of
the labor market, focus on only part of the country or are limited to a subset of questions about
labor market performance. Perhaps due to the magnitude of the questions, the bits and pieces that
are found in the literature seem inconsistent or contradictory.

One of the reasons that we need to understand this question (that is, how well are China’s labor
markets working) is that the answer could provide a key piece of evidence that will contribute to
another more immediate debate that is raging in China: why is the unskilled wage rate rising? On
the one hand, there are scholars that say that there are hundreds of millions of “surplus laborers”
in rural China that are ready and able to enter the labor market if labor markets just worked better
(Rawski and Meade, 1998). According to this argument, if China could just get labor markets
functioning, the wage in China in the coming years would not necessarily rise that much and
industrial restructuring would not have to occur in the immediate future. In contrast, there are
others that say that the problem is not the absence of well-functioning labor markets (Park et al.,
2008). Rural wages are going up primarily because a large share of those in the prime aged

1
cohorts (from 16 to 35) already have high levels of employment in the off farm sector. Moreover,
because of a number of demographic forces, in the coming decades there will be fewer and fewer
people entering the labor force. From a poverty alleviation point of view, this is good news;
almost anyone in China that wants a job off the farm can get one. In fact, the “problem” is that
labor markets are working too well.

Who is right? While there are several papers that attempt to address this issue, few are systematic
(although there are exceptions—e.g., Park et al., 2008; deBrauw et al., 2002). Almost no paper
seeks to provide a careful disaggregated count of who is working and where they are working (at
least not in papers that are based on a national representative sample. Most empirical work on
this subject is dated.

The overall goal of this part of the report is to lay the trends out for the employment patterns in
rural China. Our ultimate goal is to help answer the question about whether the recent rises in
China’s unskilled wage is related to the underlying fundamentals of supply and demand (that is,
because China’s labor market is tight) or due to some other set of institutional barriers. To meet
this goal, we have three objectives. First, we will provide an update of the trends in off-farm
labor participation. We will estimate the nation’s aggregate off-farm participation rates, focusing
on the performance of rural labor market participation rates over a 13 year time period between
1995 and 2008. Second, we will decompose the growth in off-farm employment, searching for
clues about whether or not markets appear to be developing in ways that will support China’s
modernization. Finally, we will use findings from the first two substantive subparts of this part of
the report to make an assessment of future labor market and wage trends.

Part 1, 2. Data

Our two surveys were conducted respectively in 2005 and 2008 and focus on a time period
which spans from 1995 to the year before the implementation of the first wave of the survey
(2004) and a time period which spans from 2005 to the year before the implementation of the
second wave of the survey (2007). The first round of the survey was conducted in April 2005
using a randomly selected, nationally representative sample of 100 rural villages in 5 provinces
(Jiangsu, Sichuan, Shaanxi, Jilin and Hebei). For more details on the exact method of sample
selection see Zhang et al. (2006). The second round survey was conducted in April 2008. The
enumeration teams visited the same provinces, counties, townships, villages and households that
had been sampled and surveyed in 2005. During the second round, the enumerators implemented
a household survey that was given to 20 households per village. In total the household survey
covered 2020 households and 8471 individuals.

The survey team gathered detailed information on household demographic characteristics,

wealth, agricultural production, non-farm activities and investment. Several parts of the survey
were designed to learn about the household’s migration decisions as well as its participation in
other labor market activities over time. For all of the households in the first wave of the survey, a
nine-year employment history form was completed for each household member and each child of
the household head, even when they were no longer considered household members. For each
year between 1995 and 2004, the questionnaire tracked each individual’s participation in the off-

2
farm employment market, the main type of off-farm work performed, the place of residence
while working (within or outside the village), the location of off-farm employment (which
county/province), and whether or not each individual was self-employed or wage earning.1 In the
2007 wave of the survey, we tracked the employment histories for the same individuals and
households, collecting the same data, for the years, 2005, 2006 and 2007.

Using the employment history data, we separated off-farm jobs into four types: migrant wage
earners (henceforth, migrants); self-employed migrants; local wage earners; and the local self-
employed. Migrants were identified as people who had off-farm jobs but who did not live in the
household while working. Local wage earners were identified as people who had off-farm
employment, were not self-employed and lived at home while they worked. All people who
reported being self-employed off the farm were categorized as such. The definitions held for
both members of the household and children of the household head. We also asked about the
extent of the participation of each member, in each year, in the household’s on-farm activities. A
household labor force measure was created by aggregating all individuals in the households
above the age 16 when they indicated that they were either working in or searching for
employment in agricultural and/or industry in each year. If a person over 16 indicated he had
retired, could not work for health-related reasons or was enrolled in school full-time, he/she was
not included in the labor force total. Descriptive statistics for selected variables are included in
Table 1.

Part 1, 3. The Evolution of Rural Labor Markets in China

Consistent with previous findings of other national studies of rural off-farm employment (e.g.,
deBrauw et al., 2002), data from our survey show the off-farm labor force expanded steadily
between 1995 and 2007 (the period covered by our employment history data). From around 31
percent in 1995, our survey estimates that by 2004 more than 50 percent of the rural labor force
found some employment off-farm (Figure 1, Panel A). In other words, 2004 can be thought of as
a watershed year, since (according to our data) it is the first year that more than half of the rural
labor forces was engaged in some kind of off farm work (either wage earning; self-employment;
or both). By assuming that neighboring provinces—similar to those surveyed—have identical
rates of off-farm labor participation, we estimate that off-farm rural employment in China rose
from less than 150 million in 1995 to more than 250 million rural residents in 2004, a growth in
off-farm employment of more than 100 million.

Although based on a relatively small sample, these numbers also demonstrate the consistency of
our data with the much larger (although less detailed) national studies by the China National
Statistical Bureau (CNSB, 1996), deBrauw et al. (2002) and the 1995 national community survey
described in Rozelle et al. (1999). The estimate from our survey data for the 1995 off farm
employment rate is almost the same as both CNSB’s estimate of the off farm labor force (31
percent), the 2002 study by deBrauw et al. (32 percent) and a 1995 community questionnaire-
based estimate of rural off-farm employment (34 percent) that was published in 1999 (Rozelle et
al., 1999).

3
Despite the large investment into rural areas during the first term of the Wen-Hu regime (2003 to
2008—Luo et al., 2007) and despite the rising unskilled wage rate after 2004 (Park et al., 2008),
our data show that rural off-farm employment growth continued expanding between 2004 and
2007 (Figure 1, Panel A). By 2007, 55 percent of rural individuals were participating in off-farm
work, a rise of around 5 percentage points between 2004 and 2007. If this is representative of the
entire country, this means that nearly 280 million rural individuals worked off the farm in 2007,
a rise of almost 30 million workers during the mid-2000s. Such a large increase in labor flow
would be one indicator that China’s labor market is functioning well.

Part 1, 3.1. Disaggregating the Evolution of Rural Labor Markets

By disaggregating China’s labor trends, our data demonstrate that labor markets are providing
more than just off-farm income to rural residents. Trends by employment type show clearly that
the target destination of workers over the past decade or so has shifted from rural to urban
(Figure 2, Panel A). In 1995 most rural individuals (nearly 70 percent) spent all of their time in
farming. Individuals who worked off the farm were more than twice as likely to live at home and
work within or close to the village (14 percent were local self-employed plus 9 percent were
local wage earners) than to work outside of the village and live away from home (around 1
percent were self-employed migrants plus around 8 percent were migrants). By 2007, however,
the situation radically changed. According to our data almost as many off-farm workers were
living away from home (24 percent wage earning migrants PLUS 3 percent self-employed
migrants) as were living at home (12% local wage earning workers PLUS 17% local self-
employed). Migrants composed both the largest and fastest growing component of the rural labor
force. At the same time, as described by Li and Rozelle (2004), local enterprises during this time
were in midst of their own major reform, shifting from local state-owned to private. During this
period of reform local employment stagnated, both due to the shutting down of many locally-
state owned township and village enterprises (TVEs) and due to layoffs that sometimes occurred
when TVEs were sold to private individuals.

Migrants have also been venturing further from home over the past twenty years, a trend that has
continued in recent years (Table 2). In 1995 around 65 percent of migrants worked within their
own province (row 2, column 1 and 2); while only around 35 percent went out of the province in
search of work (row 2, column 3). By 2007 nearly half (46 percent) of migrants left the province
for their job (row 1, column 3). Even more striking than the changes for the average rural
individuals were the changes for workers under 30 years old (henceforth, young workers). In
1995 38 percent of young workers were leaving their home provine, whereas more than half (54
percent) were doing so in 2007 (rows 3 and 4, column 3). In contrast, the trend is much less
pronounced, or nearly non-existent, among workers older than 30 (rows 5 and 6). These
observations are consistent with the trends that were just emerging and identified from a 1995
community-based questionnaire that was also focused on labor market outcomes. Rozelle et al.
(1999) found that, while only 25 percent of workers moved out of the province in 1988, by 1995
roughly 40 percent did.

The labor movement contours created from the off-farm employment histories of different age
cohorts add more detail to the characteristics of these trends and demonstrate one of the most

4
striking characteristics of China’s changing employment patterns: the youngest age cohorts (i.e.,
those under 30) have almost completely shifted the focus of their employment to the off farm
sector (Table 3 and Figure 3).2 Workers in all age cohort categories participated at nearly similar
rates as late as 1990. In 1990, participation rates of all age cohorts fell into a narrow range from
20.5 to 33.6 percent (Figure 3 and Table 3, column 1). There was no clear progression when
moving from the oldest to youngest cohorts.

However, by 2004 the rise in the off-farm participation rates of younger workers had greatly
accelerated relative to older ones and a distinct ranking appeared as one moved from the
youngest to the oldest cohorts (Table 3, column 2). In 2004 young workers in the 16 to 20 year
old cohort participated at rates more than three times (74.0 percent) those of 16 to 20 year olds in
1990 (23.7 percent). Those in the 21 to 25 year old cohort (82.2 in 2004) and those in the 26 to
30 year old cohort (72.8 in 2004) more than doubled the off-farm participation rates of their 1990
cohorts (33.6 percent and 28.8 percent, respectively). In contrast, older workers (e.g., those over
40), while still increasing their participation rates (by 23 percentage points—from 20.8 to 40.9),
worked off the farm at a rate that was nearly half the rate that of those in the 16 to 30 year old
cohorts.

The rate of increase of workers in all age cohorts accelerated even further between 2004 and
2007. According to our data, almost all of those in the youngest cohort (who were not in school
or who were not sick) were employed and working off the farm. Indeed, only less than 19
percent of 16 to 20 year olds that were in the labor force did not have a job. The rate was much
higher for the 21-25 year old cohort; 83.6 percent of these rural individuals had an off farm job.
More than 4 out of five (81.7 percent) of those in the 26-30 year old cohort also had a job off the
farm.

The work behavior of younger workers also illustrates their increasing specialization in the off-
farm sector (Figure 3). For example, in 1990, of those in the younger cohorts who had off farm
jobs (which was only 20 percent), more than half spent time either part time or at least some time
during the busy season working on the farm (deBrauw et al., 2002). By 1995 the first year of our
data, already only less than 20 percent of the youngest cohort who worked off-farm spent any
time in agriculture. By 2007 (when almost all of those in the young cohort worked off the farm)
only around 15 percent of the youngest cohort only worked on the farm. Clearly, this generation
is one very unlike those in the past. In fact, according to interviews with their parents, few of
them have any significant experience working in farming at all (except for perhaps as a school
child when helping out during the harvest or other busy times).

A similar pattern can be seen by looking at the employment histories of the 26 to 30 year old
cohort (Panel B). In interviews with young migrant workers in Beijing today, few of them say
that they have firm plans of returning to farming. In fact, several interviewees stated frankly that,
even if they did return to their villages, they would have no way to return to a life of farming
since they do not even understand the basics of agriculture. Some said they did not believe they
were really part of the village community (since they had spent most of their lives in a boarding
school or in the city working). In contrast, of those in the 41 to 50 year old cohort who worked
off the farm (a much lower number), over 80 percent of them were still working in agriculture—
either on a part-time or seasonal basis (Panel C). In short, our data illustrate an overwhelming

5
tendency for young workers to live away from home and be increasingly less engaged in on-farm
work; their community ties—at least in some cases—seem to be in the process of being
fundamentally reoriented from rural to urban.

These figures and observations are backed by numbers and interview findings from an
independent segment of our 2008 survey work (focused on collecting 2007 data) in the same 100
villages. To elicit independent information on this phenomenon of the employment trends of
younger workers, we asked a team of village leaders-cum-respondents (typically a team of two
of the village leaders—either the party secretary or village leader and the accountant) to give us
an estimate of the number of able bodied men (that were between 18 and 35 years old) that had
their residency permit (hukou) in the village (and who were not in school or sick). On average,
we were told that of the total estimated male labor force in the typical village, 777 persons, there
were 215 males in the 18 to 35 year old labor force cohort. Of these, village leaders estimated
that almost all (on average over 90 percent) were working off the farm; nearly two-thirds (65
percent) were in the migrant labor force and working and living away from the village. In a
follow up question, we asked (almost as a redundancy as it turned out) if any able bodied young
man in the village could find an off farm job (if he was willing to search for one). In more than
95 percent of the villages in which the question was asked, the answer was either “yes,” or a
slightly “qualified yes” (“as long as they put a bit of effort into their search”). Although village
leaders estimated that fewer women in this same age cohort were working off the farm (it was
harder for them to estimate how many of them were: working; searching for work; or not
searching—because many of them were raising a family and the village leaders did not know
how to treat this group), they were able to estimate that more than 50 percent of the women in
this age cohort (18 to 35 percent) were in the migrant labor force, working and living away from
home. Note that these estimates from the village leaders are close to the estimates produced from
our household data (and reported above).

The trends that are emerging across China’s provinces are also striking, and illustrate vividly the
changing nature of labor markets and the nation’s emerging development path. In the analysis of
deBrauw et al (2002), it was clear that between 1980 and 2000 the off-farm participation rates in
the richest province in that study’s sample, Zhejiang Province, were both historically higher and
grew faster than in any other province. Although lower, the growth rates of the off farm
participation rates also grew rapidly in the sample provinces that were inland (Shaanxi, Hubei
and Sichuan). Moreover, in these provinces, the percent of workers that left the province and
worked full time off the farm was by far the highest. In the other sample provinces, Liaoning and
Hebei, the employment rates were lower and growing somewhat slower—especially in the 1980s
and early 1990s.

When looking at the by-province contours of participation rates over time with our data (from
1995 to 2007), one of the most remarkable features of the set of graphs is that almost all of the
provinces appear strikingly the same (Figure 4). By 2007 the difference between the participation
rate of the province with the most off farm employment (68 percent in Jiangsu) is only 17
percentage points higher than the province with the lower rate of off farm employment (51
percent in Sichuan). Moreover, most of the growth rate in off farm participation in all provinces
between 2000 and 2007 was from those rural residents that were working full time off the farm.
Hence, the observation by deBrauw et al. (2002) that, “if the trends of Zhejiang [which was

6
growing the fastest in the early 1980s and 1990s] portend the future growth paths of China’s
other provinces], we should expect to see continued strong and accelerating labor market growth
in the coming years.” (p. 341) appears to be coming true.

Part 1, 3.2. Gender Effects of the Emergence of China’s Labor Markets

While emerging rural labor markets may have numerous effects on the fabric of rural and urban
economies, we limit our descriptive analysis in this section to a subset of the many possible
effects. Specifically, we examine how the development of labor markets has affected the level of
participation of women in off-farm activities. We also examine the effect it has had on the
participation of women in farming.

Off farm Participation. Emerging labor markets have already begun to positively affect the off-
farm participation rates of women (Figures 1 and 2, Panels B and C). Although women have
participated at rates below those of men throughout the entire study period, participation rates
have risen steadily since 1995. In fact, during our sample period the participation rate of women
in the off-farm sector has risen faster than that of men.

The rising participation rates of women have been driven by the entry of women into all job
categories, although the most striking absolute gains have come from migration (Figure 2, Panels
B and C). Throughout the entire decade of the 1980s, less than 1 percent of women left their
homes to work for a wage (deBrauw et al., 2002). However, since 1995 the rate of growth of the
employment of women in the migrant wage earning labor force has been higher than any
category of job types—for either men or women. Between 1995 and 2007, the participation rate
by women in the migrant labor force rose by 7 percentage points, rising from less than 3 percent
in 1995 (2.4 percent in the migrant wage earning labor force + 0.3 percent who are self-
employed migrants) to nearly 10 percent in 2007 (8.4 percent in the migrant wage earning labor
force + 1.2 percent self-employed migrants).

The participation by women in the youngest cohorts demonstrate the most striking gender effects
of the rise of China’s rural labor markets (Table 4). In the 16-20 and 21-25 cohorts, the rates of
participation are fairly similar; both are very high and increased fast from previous levels,
especially in 2007 (rows 1 and 2). When the time women reach the 26-30 cohort, however, the
rates of participation, while still high (about 70 percent), are beginning to slow and a gap
between male and female is beginning to appear. Even with this slow down, when taken as a
group (that is, when looking at the participation of those in the 16 to 30 year old cohort), more
than four out of five of women are working off the farm. The rates of participation, as might be
expected, fall in the female age cohorts above 25 to 30 as women begin to have children. Men
between the ages of 30 and 50 participate in the off farm labor force at rates more than 40 or
more percentage points higher than women.

Are Women Taking Over the Farm? While our current data set does not allow us to analyze
this question for the rural individuals using our 100 village study (since we did not collect
information on hours in the farming sector), in a previous paper (deBrauw et al., 2008), we show
that surprisingly the common perception that women are taking over the farm (as men push into

7
the off farm sector) is not literally true. In an environment in which a considerable amount of labor
is moving off the farm—especially in the young male cohorts, it is not surprising that there should be
growing attention to the study of those left behind. However, while other factors (e.g., composition of
the labor force) are not held constant, the CHNS (Child Health and Nutrition Data, collected by the
School of Public Health in North Carolina) and the data used in deBrauw et al. (2002—henceforth,
CNRS) also demonstrate that according to the hours measure there is little support for the labor
feminization hypothesis (Table 5). During the 1990s, the average number of hours worked by men
on their farms fell—as one might expect given the huge shift into the off farm employment sector
and the overall fall in the number of hours worked on the farm (by 33 percent from 1,528 in 1990 to
1,021 in 1996; and further to 963 in 2000). Surprisingly, however, the number of hours worked by
women on the farm not only fell, they fell faster than those of men. According to the CHNS data,
between 1990 and 1996, the number of hours worked by women fell from 1,542 in 1990 to 941 in
1996, a decline of 39 percent, 7 percentage points more than the average hours worked by men on
the farm. Clearly, according to the “hours criteria,” there is not any evidence of agricultural
feminization.

The participation of women in agriculture—especially as full time farm workers—also declined

faster than that of men during the 1990s (and during the early 2000s). This can be seen by measuring
the shaded white part of the graph between the upper trend line and the 100% line in Figure 1 (Panel
C). While the participation rates of men working full time on the farm is lower throughout our study
period, due to their earlier and larger shift into the off-farm sector, the participation rate of women as
full time farm workers declines faster. Since this measure of participation is the complement of the
off-farm participation rate, this finding is not surprising, as the off-farm participation rate rises faster
for women during the 1990s.

When we examine the proportion of farm work done by women over time in the CNRS (also for the
1990s), we also do not find evidence of labor feminization. Using the employment history data, we
created a measure of the proportion of farm work done by women in years prior to 2000. To do
so, we estimated the fraction of a full-time worker that a part-time or busy season worker
represents, for both men and women.3 By aggregating the data up to the household level and
measuring the proportion of farm work done by women in each household, we can estimate how
the share of farm work done by women changed between 1990 and 2000. 4 We account for
households that are formed after 1990 and for members of the household alive in 2000 that leave
or return to the household. To generate a confidence interval around the mean, each point was
estimated using a simple bootstrap 1,000 times.

Figure 5 shows the estimated change in the proportion of the household farm workforce that is
female over time. As suggested by the literature (e.g. Rawski and Mead, 1998), the proportion of
farm work done by women appears to increase slightly during the early 1990s. However, it peaks
in 1995 and then declines thereafter falling by nearly five percentage points between 1995 and
2000. A drop in the percentage of farm work being done by women, on average, is certainly not
consistent with a story of agricultural feminization in China. In fact, contrary to the common
perception, according to this household share measure of labor feminization agriculture is being
gradually defeminized after 1995.

8
While the conclusion from an analysis of survey data from the 1990s is that there was little evidence
of feminization, recent surveys of farming areas in north China cotton-producing regions and coastal
horticulture-producing regions suggest that after 2000 the gender share of on-farm work may be
rising again (as it did in the early 1990s). To show this we examine information about the share of
men/women who were interviewed during our survey. According to the rules of the survey, our
questionnaire (which was targeted at cotton-producing households) was supposed to be answered by
the “person who was in charge of the farming operations.” In 2000, men answered the questionnaire
more than 70 percent of the time. In 2007, women answered 65 percent of the time. The same was
true in a survey of Shandong apple and grape farmers in 2005. Women also were shown to contribute
the most labor on the family orchards in 2005. Unfortunately, these surveys are not nationally
representative and they do not contain the complete set of variables (over time; on all farming
enterprises; etc.) that are needed to answer the question. Therefore, more research is needed on this
question of the participation of women in on-farm labor activities, but, the possibility is left that
feminization is occurring again in agriculture.

Part 1, 3.3. Summary of the Empirical Findings on Rural Labor Markets

According to our household survey data, we find that the rapid increase in off-farm employment
that China experienced during the 1980s and 1990s has continued and may have even accelerated
during the first seven years of the 2000s. Our analysis shows that migration has become—by
far—the most prevalent off-farm activity. There are, however, also increasing numbers of
workers that are entering the off farm labor market by becoming self-employed. Most of the self-
employed appear to live in and work out of their home villages, although some (and a rising
number) are self-employed migrants.

The most important contribution of this part of the report is revealed by analyzing the labor force
participation rates by age cohort. According to our analysis, more than 81 percent of 16 to 20
year olds (who are not in school) and more than 82 percent of 20 to 30 year olds in the rural
labor force now work in the off farm sector. Increasingly these cohorts are working full time off
the farm and are working and living in cities.

The role of women in the labor force also is changing dramatically. The rise in the participation
rates is faster than men (although starting from a lower base). In some of the lower aged cohorts,
there is little difference between the participation rates of men and women. One interpretation of
this rise in the participation of women is that, as labor markets have become more competitive,
the scope for managers to exercise their discriminatory preferences has declined, therefore
opening up new employment opportunities for those who had previously not been able to
participate. Alternatively, the rise in women’s work could have occurred as the types of
industries that have a preference for the skills of women rose. It is also possible that employers
have been willing to hire any type are searching for all types of workers—either male or
female—and since a smaller share of females were employed in the late 1990s and early 2000s,
they have been the ones drafted into the labor force most often in recent years. To the extent that
working off the farm increases incomes and raises status, women have benefited.

9
 Part 1, 4. Implications for Future Rural Wages and Employment

In the previous section, we provided evidence showing how labor markets are performing in a
way consistent with an economy that is in transition from agriculture to non-agriculture. The
population is one that is shifting from rural to urban. Moreover, the rising unskilled wage rate in
China (which increased by more than 10 percent a year between 2005 and 2006—Park et al.,
2008) appears to be related to the tightening of the labor force—at least among the younger age
cohorts. Following this logic, it would appear as if one could safely predict that there was no
reason to forecast anything but tighter labor markets and increasingly rising wages.

While this may be one interpretation, despite the enormous shift of labor from farm to nonfarm
employment over the past decade, it is also true that there are a lot of people left in the rural
areas. If one visits villages there are still as many towns, villages and hamlets as there were 30
years ago (administrative mergers aside). Farm size, since 2005 is beginning to increase (after
falling for more than 40 years—CNSB, 2008), but, the labor to land ratio is among the highest in
the world. Even our own graphs show that there are large numbers of laborers still in China’s
villages—many of them still engaged in farming (see the white parts of the figures). Hence,
while our evidence is helpful, we still need to reconcile our arguments with the fact that there are
a lot of persons in rural China.

In the rest of this part of the report we are not going to dispute the fact that there are a lot of
people still living in rural areas (as stated, our own figures support this assessment). Instead what
we are going to do is to show that an expectation of rising wage rates in the future and the fact
that there is still large number of laborers who are still in rural areas of China are not
inconsistent. Indeed, in the rest of this section we will show that China will have plenty of labor
to fill its factory floors and satisfy the demand from the service sector. However, these new
entrants will likely only emerge from China’s villages and shift into the off farm sector if they
are enticed out by either higher nominal wages or higher “real” wages (that is, the wage plus the
services provided to workers and their families in the destination communities into which the
new entrants will be moving). In fact, there are at least three large subsets of rural residents that
are available for recruitment into the off farm labor market—a.) younger/middle-aged men that
are still working in agriculture, but who are engaged in activities that are relatively high valued;
b.) middle-aged/older men who are engaged in off farm self-employed activities; and c.)
young/middle-aged women who are raising their children in their family’s villages and have
made the decision to stay in the village because of the expense or difficulties of accessing social
services in the city (who often are also currently engaged in farming and non-farming labor
activities).

Part 1, 4.1. Finding Higher Value in Farming

In our discussions about the transition of labor out of agriculture into the off farm employment
sector, historically the story was one around getting access to the job in an off farm enterprise
(either by working for someone or by starting one’s own non-farm firm). The assumption often
was that an individual with employment off the farm job would always earn more than he could
when working on the farm. This was especially true for young, able bodied laborers who were
endowed with entrepreneurship. Indeed, in most economic models of development, it is assumed

10
that the wage rate in the nonagricultural sector is always higher than the farming sector and it is
the number of jobs that is keeping people on the farm (Gillis et al., 1996).

In a recent paper by Huang et al., 2008, however, there is empirical evidence to challenge this.
The agricultural sector has not been static during the past two decades (during the time that off
farm employment has been growing). There has been a rise in the livestock and fisheries sectors;
commercialized farming in the poultry, hog and dairy sectors, although slow to take off, are
shown to be gradually emerging (Bi et al., 2007; Rae et al., 2006). The rise in the horticultural
sector in China has been unparalleled anywhere in the world (Huang et al., 2008).

Out of this structural change have emerged opportunities for those interested in farming and who
have access to the necessary amounts of capital and management skills to invest into a number of
the newer higher valued enterprises. According to a study in Shandong Province’s horticultural
belt, rural residents—especially younger ones (both males and females) with relatively higher
levels of human capital—face a real tradeoff (Huang et al., 2008). They can search for off farm
employment (and almost always find a job) or they can go into the production of high valued
fruit and/or vegetables. And, according to our data, there is absolutely no income penalty for
doing so. The average grape- and apple-producing households (selected from a provincial
representative sample) had assets that were statistically indistinguishable from the average rural
resident earning a wage in the off farm market. Even when we held all other factors constant
using multivariate analysis, we found that the average horticulture-producing family in Shandong
made almost the same level of earnings as a family that had chosen to work off the farm (Huang
et al. 2008).

What does this mean for future wages? There are a lot of these young/middle aged farmers who
have decided to go into the production of high valued agricultural commodities. They are not
getting rich, but, they are earning the equivalent of what they would off the farm. So if there is
any benefit to working and living at home (in one’s own village), it is clear that while many of
these farmers could be enticed to leave farming and join the off farm labor market, it is almost
certain that for most it would take a higher relatively wage to induce them to leave. According to
this scenario—yes, there are a lot of laborers still left in rural China; however, it is also true that
to tap into this part of the labor force, the rural off farm wage will have to rise even higher than it
is now.

Part 1, 4.2. China’s Army of the Self-employed

Fundamentally, the same story is true in the case of the (non-farm) self-employed. Although the
migrant segment of the rural labor force grew rapidly since the early 1980s, the second fastest
growth rate was registered by the self-employed migrant that lives in the rural areas at home. In
1980, according to deBrauw et al., 2002, only 4 percent of the rural laborers were engaged in
running their own small businesses. Our data show that by 2007 the share of the rural labor force
that were self-employed (and living at home) rose to 15 percent. In other words, there are around
75 million persons in rural China who are self-employed. As shown in the Zhang et al. (2006)
these might best be described as micro-enterprises. On average, including the entrepreneur
himself/herself, each enterprise has less than 1.5 employees. Although the capitalization rates

11
have been rising and firms have been gradually evolving towards more sophisticated business
activities, these are still best characterized mostly as service-oriented, labor intensive firms.

The nature of the firm, however, does not reduce the ability of the firm’s “owner” from
generating earnings that are above the unskilled wage rate. According to a data set analyzed by
Zhang et al. (2006), in 2000 the average wage-earning worker was earning about 2 yuan per
hour. The hourly earnings of the self-employed who was living and working in the same
villages/townships as their wage-earning counterpart earned 7.8 yuan per hour. Of course, the
hourly earnings of the self-employed was not only the return to his/her labor, but also part of the
earning was the return to the owner’s capital and entrepreneurship. Indeed, the higher earnings
were also needed to offset the much higher level of risk (the standard deviation of the wage
earner’s hourly earnings was 3.9 versus 36.9 for those who were self-employed—as shown in
Zhang et al., 2006).

So how can labor markets in the future tap this segment of the rural labor force? In the same way
that that there are likely many farmers that are currently engaged in horticultural (and dairy and
commercial livestock) production that could be induced into the off farm market if the wage
were high enough, it is likely to be equally true in the case of the non-farm self-employed. Since
earning a wage is less risky (and there would be no need to invest into the capital stock/inventory
of one’s own firm), a fourfold increase in the wage is not likely needed. However, it is almost
certain that a higher wage is going to be needed to convince many of these small entrepreneurs to
stop working for themselves and shift into the more formal, wage-earning labor market.

Part 1, 4.3. Women and their Families

Finally, as our data showed, as soon as a rural person’s age cohort exceeds 25 to 30, the
proportion of men working out of the village in the migrant labor force begins to far exceed that
of women. Of course, the reason for this is that many women at this age leave the off farm labor
force and the city and return to their home village to begin to raise their family. However, like
most people in rural China, there are few who entirely leave the labor force. Except for during
the periods of time immediately before and after the birth of their babies, women usually
continue to work. Because they are living in their village, work during this time of their lives is
most likely either on farm, in a local factory or service-oriented enterprise or in their family’s
own self-run micro firm.

Why do women decide to return to the village to have their baby and raise their children? In
many societies women from migrant families continue to live in the city. Many can continue to
work. In China, while there are some women (and increasingly so) that do not move back to the
village to raise their families, during interviews most women stated that raising their family in
rural areas was much easier and cost effective. Access to health services, educational facilities
and child care are all much more convenient and less expensive (or free) when the family is in
the village. Especially in recent years as rural elementary and junior high school tuition and fees
in rural schools are free (while migrant schools still charge tuition) and rural health insurance is
beginning to become universal (and is much more convenient families that live in rural

12
communities), there are non-wage incentives to leave the migrant work force and return to the
village.

So, what can make the tens of millions of women who are living and working (and farming) in
villages (re)enter the migrant labor force? In the case of women with young children, in addition
to offering a real wage that is higher than what they are making in the village, the employer (or
city in which the employer is located) will either have to offer educational, health and other
social services or an even higher wage to compensate for the inconveniences and additional costs
of living in and using the more expensive social services in the city. Therefore, as in the case of
men who are self-employed both on and off the farm, there are a lot of women who would be
willing to enter the labor force—but only at a higher real wage.

Part 1, 4.4. Final Word: Higher Wages and Lots of Labor

So who is correct? Are there tens of millions of people living in the countryside who are willing
to enter the non-farm labor force? Or, are wages in the future destined to rise? According to our
findings and interpretation, we believe that it might best be said that both “schools of thoughts”
are right. There are a myriad of economic and demographic forces that are coming together to
tighten labor markets. These are the forces that have helped push up the wage in the past several
years. Yet, this wage is rising at a time when there are literally tens of millions of able-bodied
men and women in rural areas. This is not a sign that labor markets are not working, however.
These men and women are in the village for a reason. They are making a wage, earning through
their self-employed activities and taking advantage of social services that make it more attractive
for them to live in the village. Some of them (which in this case can still be a large number) will
undoubtedly be willing to move to the city and join the migrant labor force. The wage that will
draw them out, however, will need to be increased gradually higher and higher over the coming
years (assuming the economy keeps growing).

Are higher wages a bad thing? In fact, a rising wage rate is good for the rural economy. It will
benefit those that are endowed primarily with labor, which is typically the poor. Higher
unskilled, low-skilled wages are effective in reducing inequality. Of course, higher wages will
not come without a cost. Many of China’s industries were established on the basis of the nation’s
low wage rates. The technologies and management strategies of many of China’s factories and
industries depended on low wages. When wages rise (and they will, according to our analysis), it
will be necessary for firms that want to survive and thrive to change their technologies and
management approaches to accommodate higher wages. The key for firm survival is to increase
labor productivity. Often this involves training workers to use new technologies, giving workers
more responsibilities and relying on the enterprises labor force to be able to adapt to the demands
of markets that require more flexibility and demand higher quality. Workers in these industries
often have to have or be able to be trained in performing relatively more sophisticated tasks. This
is another task for the state in the coming years.

13
 Part 2

The Effect of Off-Farm/Migrant Employment on Household’s Decisions to Rent out and

Rent in Cultivated Land and on Investment in Home Communities in China

Part 2, 1. Introduction

In rapidly developing countries, the transfer of land rights from those who move to non-farm
sectors to those who continue farming is critically important for the successful industrialization
and the structural transformation of the agriculture sector. Moreover, if land markets are
inefficient, the retiring farmers cannot liquidate their land assets and the remaining farmers
cannot expand their farm size to earn the income comparable to the off-farm sector. In post-war
Japan, the malfunction of land rental market due to rent controls and other government
interventions was one of the major causes to preserve small-scale inefficient part-time farmers
(Hayami, 1988; Otsuka, 1992). Thus, the development of well-functioning land markets should
be one of the important policy goals to mitigate the inter-sectoral income disparity problem
especially for the emerging middle income countries.

It is known that if one of the factor markets (i.e., labor, land sales, or land rental market)
functions competitively under the assumption of constant returns to scale, the efficient resource
allocation is achieved (Kevane, 1996). Due to the high monitoring costs of farm work, farm labor
markets are thin and the use of the hired labor is confined to simple tasks (Hayami and Otsuka,
1993). Care intensive activities, such as water management and fertilizer application, are carried
out only by family labor almost without exception. Land sales markets are not expected to
function competitively as a mean of land reallocation across households, because of the
imperfect credit market. Moreover, because land can be used not only for farming but also as
collateral to receive a formal credit, the market price of land is often higher than the present
value of future agricultural profits accrued to land, making it difficult to finance the cost of land
purchase (Binswanger and Rosenzweig, 1986). Thus, among these factor markets, land rental
market is the most common way of reallocating resources efficiently across farm households
(Otsuka, 2007).

Have cultivated land markets in China begun emerging? After coming out of the commune
period in the early 1980s, the next two decades saw China’s small farm-based agricultural
economy change from one in which resources were allocated by planners to one in which
markets played a major role. Commodity, input and labor markets have been shown to gradually
develop and lead to higher efficiency and welfare gains for the rural population (Rosen et al.,
2004).

Rental markets for cultivated land also appeared—although their appearance was most evident in
the late 1990s. In the late 1980s and early 1990s few farmers engaged in rental activities (Turner
et al., 1998; Brandt et al., 2004; Deininger and Jin 2005); however, after the mid-1990s, land
rental activities expanded rapidly. According a national study by the China National Statistical
Bureau in 2001, 9.5 percent of households nationwide rented land in. Most of the rental contracts
during this time period were oral, informal and often seasonal (or at most annual) in nature.

14
Inside China—a country that through its 1980 reforms created an agricultural economy based on
200 million farms each with fewer than 0.5 hectares—leaders have consistently encouraged
cultivated land rental transactions. Land rental is one of the main ways in which operational land
holdings are supposed to be expanded (Cai et al., 2008). Policy documents clearly state that
farmers should strive to rent land in order to increase farm size, raise farming efficiency and
generate higher labor productivity (that is, output per laborer). Among the different major policy
pronouncements, the directives of the late 1990s that extended household contracts until the late
2020s and the Cultivated Land Contracting Law of 2003 both spelled out the intentions of
China’s top leaders: cultivated land rental would play an important role in China’s agricultural
development strategy (Wen, 2010). However, it is also well known that despite well intentioned
policies, it often is economic forces that have the greatest impact on the emergence of markets.

The nature of labor markets may be one such economic force that could have an impact of the
emergence of land markets. The “East Asian Miracle” is generally regarded as one of the most
successful development paradigms in the 20th century. Following this pattern, Japan, Korea, and
Taiwan experienced a rapid transformation from a rural towards an urban society based on
industry rather than agriculture as the main source of income. The rise of off farm employment is
one of the most salient characteristics of East Asian countries during their early periods of
development. Specifically, during the “takeoff periods” large fractions of the rural population
moved off the farm into urban manufacturing jobs, fueling sharp rises in productivity and
incomes. Almost as important, during their industrialization and urbanization phases leaders
were able to reduce poverty among those left in rural areas and maintain a healthy agricultural
sector, thereby attenuating trends towards increased inequality (Johnston and Mellor, 1961,
World Bank, 1993). One of the key parts of the package of policies and institutions that allowed
the agricultural sector to stay healthy as off farm employment rose was the appearance of
cultivated land rental markets.

In many ways China’s path of development during the past two decades has been similar to what
was followed by Japan, Korea and Taiwan. Starting with a largely rural population, engaged in
farming, many rural residents have reoriented their livelihood strategies. Off-farm work has
emerged as a main source of income growth for many rural households (Lohmar, 1999, Kung,
2002). Up to 100 million migrants reside outside of their home villages. Family-owned
businesses and privately-run factories provide increasing amounts of employment in rural areas.
To an extent never experienced before, young and better-educated workers moved to cities while
their remittances or the assets they brought back upon their return contributed to rising rural
incomes (de Brauw et al., 2002; Li et al., 2010).

There are studies that have focused on the impact of off-farm employment on the development of
cultivated land rental market. For instance, Yao (2000) concluded that a market with more
heterogeneous population and free-move labor force would boost cultivated land rental market.
Other studies also have raised the possibility that off-farm employment would accelerate the
development of cultivated land rental markets (Deininger and Jin, 2005; Li et al., 2009; Zhong
and Ji, 2009). Unfortunately, many of these studies have shortcomings. The data used by some
are often limited to few provinces. Others are out of date. Therefore, we believe that it is
important to understand the interactions between off farm employment and land markets and

15
analyze the impact of off-farm employment on the emergence of cultivated land rental markets
using a data set that is more recent and that is national representative.

Therefore, the overall goal of this part of the report is to have a better understanding of the
impact of rising off-farm employment on farmer cultivated land rental activities. To achieve this
goal, the rest of this part of the report is organized as follows. The next two sections describe the
dataset and use the data to show the status of the rental market in China. Using descriptive
statistics we examine if there is any correlation between off-farm employment and cultivate land
rental market activity. The fourth and fifth sections develop an econometric model and analyze
in a multivariate framework the impact of off-farm employment on cultivated land renting out
and renting in. In the sixth section of this part of the report, we look at the effect of migration on
investment in the home communities. The final section concludes.

Part 2, 2. Data

The data used in this part of the report are a subset of a dataset that was collected during two
rounds of nationwide surveys. The surveys were carried out by the authors in December 2000
(collecting data for the year 2000) and early 2009 (collecting data for the year 2008). The dataset
for the year 2000 includes information from 60 randomly-selected villages in 6 provinces
representing China’s major agricultural regions. The provinces selected include Hebei, Liaoning,
Shaanxi, Zhejiang, Sichuan and Hubei. A total of 1200 households were investigated. For each
province five counties were selected. Two villages were randomly selected from each county.
Twenty households were chosen from each village. Among the 1200 households’ records, 1189
records had complete information. In 2000 exactly 11 (out of 1189) households were not
engaged in farming.

In the 2009 survey, we went back to the same villages that were surveyed in 2000. There were
two exceptions. Because two of the villages in Sichuan were in the earthquake-damaged areas of
Sichuan, we were not able to do the survey in the villages. Therefore, the sample size was
reduced from 2000 to 1160. Among the remaining 1160 households surveyed in 2000, we were
able to re-investigate 1046 households in 2009. Of the 114 households that we could not find in
the village, 89 of them had moved out of the village and resided in an urban area. The other 25
households either disappeared because all of the members had died (seven households) or were
living in the village but were not engaged in farming activities (18 households—mostly because
they were too sick or too elderly to farm).

Using the 1046 households surveyed, we constructed a true panel dataset. Among 1046
households surveyed, however, not all households could be part of the panel. There were some
households that “split” into 2 or more separate households between 2000 and 2008 (due to
marriage or other reasons). During the data collection effort in 2000, for some reason a number
of other households did not fully complete their employment histories (which meant that we did
not know their off farm employment status for the years which were used to create the seven
year lagged employment variable—one of our key independent variables of interest). In the end,
we were able to create a panel dataset that included 836 households that could be used in the
study (Table 1). In the case where our variables created with data from the data set are measured

16
in value terms, we put them into real 2000 yuan terms using the Rural Consumer Price Index
from the China Statistical Yearbook (China National Statistical Bureau, 2009).

Part 2, 3. Off-farm Employment and Cultivated Land Rental Market

A summary of rental land is provided in Table 6 and the rise in cultivated land rental activity is
clear. In 2000, among the 836 households included in our panel dataset, 69 households (or 8.3
percent of the households) rented out land. By 2008 the same set of households rented out 17.2
percent of their cultivated land (144 out of 836—column 2, Table 1). Interestingly, also for this
same set of 836 households, the share of households that were renting in cultivate land increased
only slightly between 2000 and 2008 (column 3). One explanation for this observation is
provided by Gao et al., (2011), which shows that the average size of rented-in land per household
has been increasing in the past decade. This is also true for our survey households.

As seen in the introduction section of this part of the report, the literature has shown that the
emergence of cultivated land markets is associated with a number of economic and social forces,
including the rise of off labor markets (Nabi, 1985; Deininger and Feder, 2001; Kung, 2002;
Deininger and Jin, 2007). In the case of China, where both access to off farm employment and
level of the wage is rising (de Brauw et al., 2002), it is possible that this is one of the forces that
have been driving the rise of cultivated land rental. When farmers are able to earn substantially
more off the farm, they begin to consider ways to rent out their land to those that have less of an
opportunity to work off the farm (or to those that are relatively better at farming).

Table 7 provides evidence of the interaction between the rental cultivated land and off-farm
employment. In this table, we divide the land rental activities of households into renting-out and
renting-in activities. The data are also provided by year and by province. In the case of
household off-farm employment activities, we divide our observations into the off farm activities
of household heads and the off farm activities of other family members.

Table 7 shows the rising trend of rented-out land households between 2000 and 2008 (column 1)
was positively correlated with increases off farm employment, both that of the household head
(column 3) and the other family members (column 4). Specifically, as the share of off farm
employment of the household head (other family members) rose from 21 percent (33 percent) in
2000 to 41 percent (89 percent) in 2008, the share of cultivated land that was rented out rose
from 8.3 percent to 17.2 percent (rows 1 and 8). This is robust in the case of every province. In
both 2000 and 2008, the data also demonstrate that provinces with more off-farm employment
are positively correlated with the share of households that rent out their cultivated land
(comparing column 1 with columns 3 and 4). Perhaps because of the more moderate rise of
households that rent in land (column 2), there is not a strongly correlation between the share of
households that rent in cultivate land and the share of households with off-farm employment
(columns 3 and 4). It appears as if as more and more households move off the farm (and rent
their land out), the share of households renting in land is not increasing, though they are
increasing the size of the rented in cultivated land.

17
The relationship between households with rented-out land and off-farm employment is even
more obvious when we divide our sample by the type of household member. In 2000 when the
head of the household worked in the off farm employment market (Table 8, column 2), the
households tended to have a higher probability of renting out their cultivated land (10.5
percent—row 1) than in the case in which the head of the household was not working off the
farm (7.7 percent—row 2). The same relationship (21.7 for households in which the household
head worked off farm; 14.1 for households in which the household head did not work off the
farm) was also observed in 2008 (column 5, rows 1 and 2). Moreover, when we divide our
samples into households in which other (non-household head) family members do and do not
have off-farm employment, the correlation between rented-out land and off-farm employment
still holds in both 2000 (column 2, rows 3 and 4) and 2008 (column 5, rows 3 and 4).

On the other hand, similar to the evidence found in Table 7, Table 8 also shows that off-farm
employment is not closely related with rented-in land activities. In fact, in 2000 there was a
weakly negative correlation between off-farm employment and rented-in land (column 3)—
although this relationship disappeared in 2008 (column 6). As above, this relationship is the
result appears to be the result of more and more people moving off the farm; and more and more
households renting their land out; while the shrinking cohort of those remaining in the village are
renting out relatively more land (per household).

Part 2, 4. Multivariate Analysis

In this section there are two subsections. The first defines the econometric model. The second
discusses our approach to estimating the model. The next section reports the results of the
multivariate analysis.

Part 2, 4.1 Econometric Model

In order to estimate the effect of off-farm employment on land rental market, we specify the
following empirical model:

R_outit = a1 + b1 Head_OFit-j + c1 Other_OFit-j + g(Zit) + uit (1)

R_init = α2 + b2 Head_OFit-j + c2 Other_OFit-j + h(Zit) + eit. (2)

In equations (1) and (2), subscript i represents the ith household and t represent the tth
year. In our analysis that uses a panel dataset with two years of data t either is equal to 2000 or
2008.

Equations (1) and (2) are specified in order to be able to identify the determinants of renting-out
and renting-in behavior. In equation (1), the dependent variable is a dummy variable, R_out. The
variable equals 1 if the household is renting out cultivated land and is equal to 0 otherwise. In
equation (2) the dependent variable is also a dummy variable, R_in, but in this case is equal to 1
if the household is renting in cultivated land and is equal to 0 otherwise.

18
The main explanatory variable of interest in equations (1) and (2) are Head_OFit-j and
Other_OFit-j. These two variables are the variables that measure the extent of the rise of off farm
activity of each household. The first of these, Head_OFit-j, is a dummy variable that equals 1 if
the household head has an off-farm job in year t-j, where j=7. If the household head did not have
an off farm job the variable, Head_OFit-j, equals 0. The other variable, Other_OF, represents the
number of family members (excluding the household head) which has an off-farm job in year t-j.
The value of Other_OF ranges between 0 and 5.

The use of a lagged independent variable of interest is done as a way to control for an
unobserved heterogeneity (simultaneity). In other words, we lag both Head_OF and Other_OF
in order to avoid any bias in our variable due to endogeneity. We selected to lag the variables by
seven years because we have data on off farm employment for the households from the 2008
wave of the panel data for 2001 and we have data on off farm employment for households from
the 2001 wave of the panel data for 1993. Using household-level data, we expect that b1 and b2
will be positive since we expect that those households that have either their household head or
other family members working off the farm will decide to rent out their cultivated land relatively
more. At the same time, c1 and c2 is expected to be negative. When households have a high share
of their family members working off the farm, it should lead them to lower the possibility of
renting in cultivated land.

Equations (1) and (2) also include a vector of control variables, Z, to account for impacts of other
factors on the household’s cultivated land rental decisions. In this study, Z includes the five
factors: the size of the household labor force, measured as the number of all members of the
family that are in the labor force (able-bodied, not in school and between 16 and 65 years old—
family labor); the household’s own cultivated land holdings (which is mostly land contract to the
household from the village), excluding rented-in land (own cultivated land in hectares); the value
of the household’s assets that can be used in agricultural production (measured as the value of
agricultural equipment normalized by the by the of the household’s own cultivated land holdings
(ag_equipment);5 and household wealth (wealth). The wealth variable is measured as a sum of
value of the durable consumption-side assets on a per family member basis. We expect that,
holding other effects constant, households with more family labor are less likely to rent out their
cultivated land (rows 5-7, Table 8). Interestingly, Table 3 also shows that households with higher
values of agricultural production assets have higher levels of rented in cultivated land (rows 11-
14).

The u and e in equations (1) and (2) are the disturbance terms. They are assumed to be
distributed normally and iid. The detailed definitions and statistical descriptions of all variables
used in regression are summarized in Appendix Table 2.1.

Part 2, 4.2. Estimation approach

According to the data structure, we use the following estimation methods. First, we estimate
equations (1) and (2) using a Probit model. To better control for the characteristics of each
county, in the Probit model estimations of equations (1) and (2) we also include county dummy
variables. The results are presented in columns 1 and 2 in Table 9.

19
Second, to control for the characteristics of households, or the unobservable effect of households,
we also use an Ordinary Least Squares with fixed-effect estimation (OLS-FE).6 When doing so
all non-time varying unobserved effects that affect cultivated land rental are controlled for. This
approach is used to estimate both equations (1) and (2). The results are presented in columns 3
and 4 in Table 4.

Part 2, 5. Results of Multivariate Analysis

The overall results of the estimated equations perform well (Table 9). Specifically, the goodness
of fit statistic (Adjusted R-square) ranges from between 0.23 for the basic OLS-version of the
Probit equation for renting out and 0.12 for renting in (columns 1 and 2, row 8). This level is not
low for regressions that examine economic activities such as cultivated land rental based on a
panel data.

A number of the coefficients on the control variables also were as expected. For example, the
estimated coefficients of the own cultivated land variable is positive (and significant) in the
renting out equation and negative (and significant) in the Probit versions of the renting in
equation (Table 9, columns 1 and 2, row 4). A family’s cultivated land endowment, as expected,
is a determinant of cultivated land rental. The estimated coefficient on the agricultural equipment
variable also shows that access to farm equipment discourages rental out (negative and
significant sign in the renting out equation) and encourages rental in (the positive and significant
sign in the renting in equation—columns 1 and 2, row 5). The signs and levels of significance are
almost the same for OLS-Fixed Effects equations for both the Own Cultivated Land variable and
the Ag Equipment variable (columns 3 and 4, rows 4 and 5).

When examining the effect of the independent variable of interest (measuring off farm
employment) on cultivated rental market activity, the results of this part of the report are
remarkably strong and robust. First, no matter what estimation method is used, it is consistently
observed that both Head_OF (which measures whether the head of the household had an off-
farm job seven years ago) and Other_OF (which measures whether any other family member
besides the household head household had an off-farm job seven years ago) have significant and
positive impacts on the household’s decision to rent out their land (Table 9, columns 1 and 3,
row 1. When using the results from the Probit estimations we can see that, everything held equal,
if a household head was participating in the off-farm employment market, the probability for the
household to rent land out the household’s cultivated land was increased by 3 percentage points
(row 1 and column 1, Table 9).

While it may be a concern that part of the finding from the Probit estimates in Table 9, column 1
is due to some observables at the household level (or above) that is correlated with both off farm
employment and cultivated land rental, the result remains when we included household fixed
effects. In fact, the impacts become somewhat more significant when we use the OLS fixed
effect (OLS-FE) estimation approach. Specifically, the estimated parameter for Head_OF
doubles (0.06, column 4, row 1). This finding is consistent with the point made by Deininger and
Jin (2008) when they conducted a similar study in Vietnam. When controlling for household

20
unobservables,we find even more clearly that cultivated land rental by households rise as off
farm employment (of the household head) increases.

This same estimation-effect is found in the estimation of the relationship between the off farm
employment of other family members and cultivated land rental activity (Table 9, columns 1 and
3, row 2). When using Probit (column 1), holding other things constant, we find that when family
members move off the farm, the probability of renting out the family’s land rises by 3 percentage
points. When using the OLS-Fixed Effects, the measured effect size rises to 4 percentage points
(and is also significant. One of the methodological lessons of this is that it is important to
account for the unobservables when analyzing the relationship between family activities in two
markets, in this case labor and land.

Similar to the descriptive analyses presented in previous section, both Head_OF and Other_OF
do not have any significant impact on the household’s decision to rent in cultivated land. Given
the results from rented out equations (columns 1 and 3, Table 9), that is, number of households
rented out cultivated land increases with the rise of off farm employment, the interpretation of
insignificant impact of off-farm employment on rented in decision (or number of households to
rented in land) suggests that rented out cultivated land has been moved to the same number of
households that had rented in land in the past. On the word, asymmetric impacts of off-farm
employment on the household decision’s to rent land out and rent land in suggest that there is a
trend towards increasing the size of transferring land among households that are renting in land.

The results in Table 9 further show that other factors (related to labor and land endowments) also
play important roles in the household decision to participate in cultivate land rental markets. For
example, holding other factors unchanged, when a family has a larger number of members in the
labor force (Family labors) there is a negative impact on the household’s decision to rent out
land (row 3, Table 9). This, of course, is also expected given the fact that labor endowed
households have more labor with which to cultivate their own land (given off farm employment
held constant).

Part 2, 6. Migration and Investment

Using the same data set as used in the analysis above, in this section we seek to identify the
effects of migration on investments in the source community. To do so we show the basic
descriptive and multivariate results from deBrauw and Rozelle (2008). We also refer the
interested reader to an unpublished paper (that finds similar results with an alternative data set)
by deBrauw and Giles (2008).

Part 2, 6.1. Descriptive Results

From the household's perspective, migration could affect investment either while the migrant is
away or after the migrant returns. While there may be differences in the ways that migrants and
return migrants affect investment, we do not make such a distinction in this part of the report. In
our theoretical model in the deBrauw and Rozelle (2008) paper, we focus on the way that
migration, in general, affects investment. In doing so, we implicitly assume that the process of

21
sending out migrants and their decision to return to the source community are parts of a single
process and our hypotheses do not distinguish between the two phases of migration. In the
descriptive work in this subsection and in the econometric analysis in the next subsection we
specify two variables, the number of household members in the migrant work force during each
sample year and the number of return migrants, although we have a priori expectation about
which one will have a larger or smaller effect on investment.

When we examine the relationship between migration and cumulative investment in 2000 in rich
and poor areas, we find that migrant households generally have higher average investment levels
than non-migrant ones (Table 10). In rich areas both households with migrants and return
migrants have total investment levels that are nearly 70 percent higher than non-migrant
households. In poor areas migrants also have total investment levels more than 20 percent higher.

We find a much different pattern for productive than consumptive investment when examining
investment levels by migration participation (Table 10, columns 2 and 3). On average, in both
rich and poor areas migrant and return migrant households invest much more in housing and
durables than non-migrant households. The pattern for consumptive investments is strikingly
similar to the pattern for total investments. In contrast, no clear pattern emerges for productive
investments. Return migrants appear to have higher average productive investment levels than
non-migrant ones in rich areas, and non-migrant households have the highest levels of productive
investment levels in poor areas.

From the our descriptive findings, then, it would appear that if a positive relationship between
migration and investment exists, it is between migration and consumptive investments, rather
than between migration and productive investments. Therefore, after examining differences
between the point estimates for the mean investment levels for migrant and non-migrant
households, according to our data there is some reason to believe that households in rural China
may send out migrants to finance investments.

However, as we know, the descriptive analysis has several drawbacks. The standard errors of the
point estimates are large. Large investments by some households also skew the means, as is
common with investment or income data. As a consequence, the statistical validity of the
differences may be questionable. Most importantly, however, there are almost certainly a number
of other factors that covary with the migration and investment and obscure the relationship. It is
for this reason that in the next subsection, we look at the multivariate analysis of the effect of
migration on investment.

Part 2, 6. 2. Multivariate Results.

Our descriptive results in Table 10 indicate that migration is more likely to affect consumptive
than productive investment, so we begin our analysis by examining the effect of migration on
consumptive investment (Table 11). First, we estimate an equation that relates migration to
investment (see deBrauw and Rozelle for details) using a standard fixed effects estimator
(column 1), an instrumental variables (IV) estimator (column 2), and an Anderson-Hsiao

22
estimator (column 3). We also experiment with controlling for life cycle effects with the
experience level of the household head and its square (columns 4 and 5).

The model performs fairly well. As expected, the difference between the coefficient on the
lagged investment variable in the standard fixed effects model (0.57) and the IV estimate (0.80)
is on the order of $1/T$, as five periods are used. Finally, in all specifications that include fixed
effects the hypothesis that all fixed effects are zero is rejected, indicating that the unobservable
effects could indeed be affecting consumptive investment. We also find that few of the other
control variables, which measure the household land endowment from the village and the
demographic composition of the household workforce, are significantly different from zero. In
fact, the result is not surprising, since most of the variables do not vary much over time (making
it so the effects are being accounted for by the fixed effects).

When we use the standard fixed effects estimator (Table 11, column 1), we find evidence in
support of our first hypothesis. The coefficients on the variables of interest are reasonably stable
and have high t-ratios. Specifically, we find that when the household sends out an additional
migrant, consumptive investment in the following period rises by 3062 yuan; when migrant
returns to the household investment increases by 4027 yuan. Both coefficients are statistically
significant at the 5 percent level. As discussed above, however, the coefficients on the migration
variables are likely to be biased upward due to dynamic endogeneity.

To counter the endogeneity problem, we instrument the lagged investment variable with its
second lag and recompute the fixed effects estimator (Table 11, column 2). The results change
somewhat, but there is still support of the hypothesis that migration affects consumptive
investment. The coefficient on the number of migrants variable decreases to 2617, but it is still
statistically significant. Hence, the results provide evidence that on average, across all
households in the sample migration appears to add to household consumptive investment. The
effect of return migrants on investment, however, disappears. Although the descriptive statistics
indicated that return migrant households had higher cumulative consumptive investments than
nonmigrant ones, when we control for dynamic endogeneity as well as household level
unobservables, the differences disappear and return migration does not appear to lead to higher
consumptive investment.

We perform two further robustness checks on the IV estimator. First, we use the Anderson-Hsiao
estimator (Table 11, column 3). Although the t-ratios on the estimated coefficients of the
migration variables are smaller, the estimated coefficient on the number of migrants variable
(2619) is almost exactly the same as the estimate using the IV estimator (2617). As the results
are consistent across estimators, we prefer the IV estimator for the statistical reasons discussed
above. Second, we add additional control variables to the basic IV specification to hold constant
possible life cycle effects on investment (columns 4 and 5). We are concerned that a household
might systematically change its investment behavior over its life cycle, and the life cycle might
be correlated with opportunities for migration. The inclusion of life cycle variables further
reduces the magnitude of the estimated coefficients on the migration variables somewhat, but
overall the general result is consistent across specifications.

23
Taken as a whole, our first set of results show that there is a positive relationship between
migration and consumptive investment and that this is mostly consistent with the patterns
suggested by the descriptive statistics. Using the estimated effect of migration on investment in
column 5, a household at the median level of consumptive investment in 2000 (7890 yuan),
sending out a migrant would increase its consumptive investment by 27.4 percent. Households
that send out migrants seem to take advantage of remittances and other intangibles sent home by
migrants to improve their quality of life in the source community. The results also are consistent
with the theory that households are using migration to raise capital for at least one type of
investment.

Unlike consumptive investment, our analysis shows that neither migration nor return migrants
have a discernable effect on productive investment (Table 12). Using the IV estimator and the
same specification used in column 5 of Table 11, we find that the coefficients on the number of
migrant and return migrant variables are not significantly different from zero (Table 1, column 1;
rows 2 and 5). Importantly, using alternative specifications leads to the same conclusions.
Undoubtedly influenced heavily by the results for productive investment, our analysis also shows
that migration has no statistically significant effect on total investment.

Although the results are not surprising from the perspective of our descriptive statistics, they are
in conflict with other authors who have studied the relationship between migration and
investment in rural China. We believe that the difference largely results from our ability, through
the use of retrospective panel data, to control for more unobserved heterogeneity than other
authors have.

Of interest (though we do not show the evidence here for sake of brevity), when we divide our
sample into households in rich and poor areas, we find that neither migration nor return
migration has a statistically significant effect on either consumptive or productive investment in
rich areas. Given that households in richer areas can more easily self-finance and that financial
intermediation is better developed in the richer areas, our results are reasonable. In contrast, in
poor areas the number of migrants has positive and statistically significant effects on
consumptive and total investment. If a household sends out an additional migrant, the household
experiences a 2374 yuan increase in consumptive investment and a 1823 yuan increase in total
investment. Return migrants, however, do not affect consumptive investments in poor areas.
Importantly, neither the number of migrants nor the number of return migrants has a statistically
significant effect on productive investment. These results are consistent with the hypothesis that
households in poor areas lack good productive investments, and therefore they use migrant
remittances to invest primarily in consumptive investments.

Although we do not want to place too much stock in the magnitude of our coefficient estimates,
they do imply that the size of the effect on consumptive investment in poor areas is quite
important. In gauging the size of the effects of migration on consumptive investment in poor
areas, we find that they are quantitatively important, since aggregate wealth levels are
comparatively low in poor areas. At the median consumptive investment level in 2000 for poor
areas (7900 yuan), an additional migrant increases consumptive investment by around 27
percent. More fundamentally, the results also imply that households in poor areas, unlike those in
rich areas, depend upon migrants to finance investment. They also imply that although the

24
business environment in or around the source community is poor, households still want to invest
and do so by using migration to invest in housing or consumer durables to improve their living
standards.

Part 2, 7. Conclusions

This part of the report analyzes the impacts of off-farm employment (and several other factors)
on the emergence of cultivated land rental markets. Using a unique, nation-wide, set of
household-level panel data, the results show that off-farm labor markets and cultivated land
rental markets are highly interrelated. In particular, off-farm employment can significantly
promote rural households to rent cultivated land out. This is potentially an important finding for
policy makers that are concerned with equity and welfare for those that are left in the village.
The result on renting out (and its conclusions) is reinforced by the measured relationship
between off farm employment and the decision to rent cultivated land in (not significant). This is
possible because for household that are renting, average rented-in plus own cultivated land per
household has been increasing. As off farm employment continues to rise, we would expect that
more cultivated land will be rented out to those households who are interested in expanding their
farm size (and focus on farming rather than off farm employment).

Three separate results also show that land transfer has facilitated better use of each household’s
available resources and resulted in more equitable distribution of land. First, the econometric
analyses indicate that cultivated land has been transferring out from households with less family
labor to households with more family labor. Second, we find that cultivated land has been
transferring from households with less agricultural equipment (productive assets) to households
with more agricultural equipment. And, finally, the results demonstrate that cultivated land is
transferring from households with more own cultivated land to those with less. In other words,
China’s cultivated land rental markets are moving land from those with less labor, less
(productive) capital and more cultivated land to those with more labor, more capital and less
cultivated land. In addition, wealthier households tend to rent out their land and the poor are not
excluded from renting-in land. In other words, there is evidence that cultivated land rental
markets have positive effect on equal land distribution and equity.

In view of its rapid recent pace of economic growth, China provides an excellent example to
study the implications of a large-scale transition of the labor force from the agricultural to the
non-agricultural sector. Exploring determinants of the household’s decision to participate in
labor markets allows us to demonstrate not only that those with lower endowments of human
capital and physical assets will be forced to join the migrant labor force while those who have
some assets or live in wealthier provinces can establish non-farm businesses or obtain local wage
employment but also to show that it is indeed those with lower agricultural ability who are most
likely to join the non-agricultural labor force. This implies that operation of land markets can, by
transferring land no longer used by households who have taken up non-agricultural employment,
provide gains not only in efficiency but also in equity. Indeed, the lesson for the rest of the world
is that the emergence of land markets can set in motion a process of greater agricultural
productivity and can help to narrow the income gaps, a subject that is much concern by policy
makers in all developing nations.

25
 Part 3

The Impact of the Global Financial Crisis

on Off-farm Employment and Earnings in Rural China

Part 3, 1. Introduction

There is a well-known saying China, “jihan qidaoxin.” A rough English translation is: when
peasants are hungry, they rebel.

Hence, it is unsurprising that when the global financial crisis halted production in factories
across China, leading to lay-offs of large segments of the rural migrant labor force, Beijing’s
leaders were quick to recognize that this might not only be an economic crisis but a social one as
well. Of China’s more than 500 million-strong rural labor force, 265 million people were
estimated to have off-farm employment in the mid-2000s (Zhang et al., 2008). Of these, more
than half had left their hometown to labor in the workplaces that sprawl across China’s eastern
coast and large municipalities (Kong et al., 2009). What would happen if too many of China’s
rural residents lost their jobs?

Anecdotal reports only heightened concerns. For example, in October 2008, the night-flight of
one textile factory owner in Shaoxing, a city 100 miles from Shanghai, left 4,000 workers
unemployed and $200 million in bills unpaid (Xiao, 2008). His former employees, finding the
factory gates bolted and their erstwhile employer nowhere in sight, erupted in protest. In other
places, laid-off migrant workers had no option but to return to their hometowns (Johnson et al.,
2009). Some decided to return to their villages and to begin farming again. However, there were
cases reported in the media where individuals returned to their home villages only to create
tension and conflict with the tenants that had been farming the land while the migrants had been
living and working in some far away city (Yang, 2008).

Unfortunately, there is little systematic information available to China’s top leaders and
economic planners. China’s policy makers require data on the number of laid-off and/or
unemployed rural workers, and information about the consequences of job loss for workers in
order to gauge the seriousness of the crisis. The estimates that do exist concerning the impact of
the crisis on rural labor range widely. One analyst projected that 12 million workers would be
laid-off (Sheng et al., 2009) and another placed the estimate at 20 million (Chen, 2009). The
nature of the reporting, the definitions of “impacts” and sources of the data, however, were not
always clear.

Somewhat surprisingly given the importance of the question, there have not been many
independent attempts by researchers to estimate the impact of the financial crisis on China’s rural
labor force. The existing research to date in this area faces data issues or other shortcomings. For
example, Kong et al. (2009) used factory data to estimate layoffs. Relying on factory data alone,
however, fails to account for labor market flexibility: workers may have lost their jobs, but found
others elsewhere. This, of course, is the problem of measuring layoffs when one is also interested
in unemployment. Enumerating workers who are still in the factories makes it impossible to
monitor the status of those who left the factories. There are also questions of representativeness.

26
Another paper (Wang et al., 2009) estimated employment using data derived from a nation-wide
dataset. The paper also reported employment rates of rural individuals in the sample. However,
the paper made no effort to measure the full impact of the crisis by comparing actual
employment to what employment rates would have been under a “business as usual”
counterfactual. In addition, there was no attempt to track exactly what happened to those that
were laid off from their jobs.

For their part, the National Bureau of Statistics of China (NBSC) also conducted a survey on
employment at the end of 2008 (NBSC, 2009). Released in March 2009, the report suggested
that 23 million migrant workers were out of a job. While important, this report suffered from
several shortcomings. First, it was conducted early in the financial crisis and, as such, did not
pick up the adjustments made by laid off workers. Second, the migrant segment of the labor
force also only represents half of the rural off-farm labor force. The report did not report on
disaggregated findings from the data or answer the question about who was hurt and who was
not hurt.

The overall purpose of this part of the report is simple. This part of the report is mostly a
descriptive piece of work that relies primarily on a nationwide dataset that was collected in May
2009 on rural households (and households from the same sample villages that moved to the city
since 2000). The broad goal of this part of the report is to document the effect of the financial
crisis on the rural labor force in China. In doing so, we will show the resiliency of the economy
(which in no small part is due to the rural labor force). To meet this general goal, we have four
specific objectives. First, we seek to compare the difference between the actual off-farm
employment rate and the off-farm employment rate under the assumption of business as usual
(BAU—a counterfactual of what off-farm employment would have been in the absence of the
global financial crisis). Second, we estimate the impact on the monthly earnings of those that did
not lose their job. Third, we sketch profiles of both those that tended to be hurt and those more
likely to have kept their jobs. Finally, we track the progress of those who were laid off and
document their progress in finding new employment. To achieve this final objective, we rely not
only on the May 2009 data, but also a set of follow-up interviews conducted in September 2009.
Ultimately, we want to provide policymakers inside and outside of China with an accurate
picture of China’s response to the global crisis, helping the world distinguish selected anecdotes
and rumors from a representative picture of labor force adjustment.

To meet these goals, the rest of this part of the report is organized as follows. The next section
describes the data. The following section uses the data to document the impacts of the financial
crisis on employment and off-farm earnings. The third and fourth sections report the correlates of
personal characteristics with unemployment and trace the plight of those that were laid off
between September 2008 and April 2009. A concluding section summarizes our findings.

27
 Part 3, 2. Data

The data for this part of the report were collected as the 2008/9 wave of the panel dataset that
was used in Part 2 of this report. In this part of the report, the dataset is called the 2008 China
National Rural Survey, or 2008 CNRS dataset.

Among the other variables collected and used for analysis in Part 2 of this report, the 2008
CNRS project team gathered detailed information on a wide number of variables covering many
household activities. In particular, there were several blocks of the survey that focused on
recording information on off-farm employment, wages and activities of respondents who did not
have off-farm employment. Because we wanted to be able to estimate a counterfactual, “business
as usual” (henceforth BAU) scenario, a nine-year employment history form was completed for
each household member and each child of the household head. For each year between 2000 and
2008, the questionnaire tracks the individual’s participation in off-farm employment, the main
type of off-farm work performed, the residence location while working within or outside the
village, the location of off-farm employment, and whether or not each individual was self-
employed or earning a wage.7

For three reasons, we also collected detailed monthly labor histories for a 24 month period: a.)
the timing of the financial crisis (started in September 2008, which was in the middle of the
calendar year); b.) the nature of labor flows in China (which often are fluid and involve
substantial job switching—even within a year or shorter time period); and c.) the timing of the
survey (conducted in May 2009, which was also in the middle of the calendar year). Had we only
collected data on a rural individual’s annual employment status, it is possible that we would have
missed important employment/unemployment dynamics that occurred after the financial crisis,
and which are central to this study. Therefore, enumerators also asked respondents to report their
employment status month by month from May 2007 to April 2009. When used in conjunction
with nine years of annual employment history data, these data enabled us to look at three types of
trends: a.) within year employment trends, including the trend between the onset of the financial
crisis (September 2008) and the last month of our data (April 2009); b.) month on month changes
in off-farm employment; and c.) predictions of the BAU scenario on a monthly basis for the
months immediately before and immediately after (through April 2009) initial adjustment to the
financial crisis.

The data set also included two other sets of variables that allow us to meet our research
objectives. For each respondent who was employed off farm in both 2008 and 2009, he/she was
asked about their average monthly earnings for 2008 and their average monthly earnings for
2009 (between January and April). Monthly earnings included both the earnings from wages,
bonuses and any in-kind compensation, but excluding housing and meals. We also asked each
individual about the average number of days worked each month and the average number of
hours worked per day. These data allow us to track both monthly earnings and wages (in
earnings per hour) of the individuals over time.

We also collected information that would allow us to characterize the respondent’s activities in
the months after he/she left his/her off-farm job. During each month (between September 2008
and April 2009) the status of the respondent was recorded: working on the farm; doing house

28
work (though not working in agriculture); not working but searching for a job; or not working
and not searching. Descriptive statistics for overall employment rates and rates of employment
by gender, age and education level are included in Table 13, rows 1 to 9.

Part 3, 3. The Global Crisis and China’s Macro Performance and Vulnerabilities

Between 2001 and 2007 the world economy grew steadily (Figure 6, Panel A). The major
economies of the world, including those of the US, the EU and Japan, registered healthy annual
growth rates of 2 percent or more. India and China consistently saw steadily rising growth rates
of between 4 percent and 12 percent. In fact, China’s growth rate was so high in 2008 that during
the first half of the year leaders took action to rebalance the economy (Kong et al., 2009).
Interest rates were adjusted upward, and bank reserve requirements were raised, both reflecting
the government’s commitment to prevent the economy from overheating.

Events of September 2008 raised concerns that China would face a sharp drop in GDP. The
global financial crisis changed the growth trajectories of all major world economies, plunging the
US, the EU and Japan into deep recession (Figure 6, Panel A). By the first quarter of 2009,
annual growth rates were negative. Although the growth rates of India and China were still
positive, they dropped steeply in both countries. In fact, compared to other major economies in
the world, China experienced one of the largest changes in growth rates between 2007 and 2008.

Quarterly growth rates (between Q1 in 2008 and Q2 in 2009) show similar stories (Figure 6,
Panel B). After staying high in Q1 and Q2 in 2008, quarterly growth rates of the US, the EU and
Japan fell, starting in Q3 in 2008. As the crisis grew worse in the first months after its onset,
growth rates steadily worsened in Q4 in 2008 and Q1 and Q2 in 2009.

During this same time, China’s quarterly growth rates also fell—although China’s growth rates
did not stay low. Between Q1/Q2 in 2008 and Q4 in 2008/Q1 in 2009 China’s quarterly growth
rates fell from more than 10 percent to around 6 percent (Figure 6, Panel B). During this time
period monthly export orders fell from more than 120 billion US dollars to less than 70 billion
US dollars (NBSC, 2009). In response to faltering growth, China’s leaders responded with a bold
stimulus package that expanded state bank loans, triggered massive waves of centrally-funded
public investment projects and encouraged local governments to increase investments. It is likely
that these moves contributed to the rise in China’s growth rates in Q2 in 2009 over Q1 (Figure 6,
Panel B).

Part 3, 3.1. Off-farm Employment Effects

In order to compare the difference between what actually happened in 2008 and 2009, we
developed a method of predicting the counterfactual levels of off-farm employment in these
years under a BAU scenario.8 To do so, we used our estimates of off-farm employment trends
(based on data from 2005 to 2008) and extrapolated the time trends out to 2008 and 2009 under
the assumption that the trends would have continued had there not been a global financial crisis.
Although the trends appear to be linear, in fitting the trend we used the average annual growth
rates in 2005-2007 (2006-2008) to estimate 2008 (2009).9

29
Under the assumptions embodied in our simple forecast model of BAU Figure 7, Panel A shows
the net impacts of the financial crisis on China’s off-farm employment in 2008 and 2009. If the
2005 to 2007 (2006 to 2008) trend in off-farm employment had continued as BAU, the share of
the rural labor force that had off-farm employment would have risen to 63 percent in 2008 (69
percent in 2009).10 Instead, in 2008 the share of rural labor force employed off-farm declined 62
percent, a drop of 1 percentage point compared to BAU. In 2009 (according to our analysis using
annual data for forecasting the BAU point estimate—under the assumption that the fall in the
first 4 months of 2009 would continue for the rest of the year), the share of the rural labor force
employed off-farm would drop to 60 percent, more than 9 percentage points (9.1%) less than
BAU. If the annual projections were correct, the difference between BAU and the actual, post-
financial off-farm employment would have been 48 million laborers (that is 0.091 x 520 million).

The same analysis conducted with data from south China (based on data from the samples in
Zhejiang, Hubei and Sichuan) and north China (based on data from the samples in Liaoning,
Hebei and Shaanxi) show that the financial crisis had a more severe impact on off-farm
employment in the south (Figure 7, Panel B). Using the same forecasting methods and
assumptions (and relying on annual data), the difference in the share of the rural force that was
employed off-farm between the 2009 BAU projection and the 2009 year-end (extrapolated)
actual share is 9.7 percentage points. The difference in the north is estimated to be only 7.8
percent. This is consistent with the observation that the most severely hit industries were those
associated with the export sector, which has a larger presence in south China.

As discussed above, the monthly-based analyses are likely to be more helpful for analyzing the
impacts of financial crisis on China’s rural off-farm employment, and so we next use the
extrapolated growth rates to predict a BAU estimate on a monthly basis after September 2008.
To predict growth rates in monthly off-farm employment from September 2008 to April 2009
relative to the same month in the previous year, we used the average annual 2005-2007 growth
rates.

Under the assumptions of the monthly prediction exercise, the impact of the financial crisis on
China’s rural off-farm employment by April 2009 was less than the results for the entire year
(which used an extrapolated estimate). This is because off-farm employment would have
declined to a BAU of 57.8 percent of the rural labor force. Instead, due to the financial crisis
only 51.0 percent of the labor force was working off the farm. This means that by April 2009,
there was a gap between the BAU share and the actual share of 6.8 percentage points.11

What does this mean in actual employment terms? According to our data (and extrapolating to
the national level), in September 2008 there were 279 million rural individuals working off the
farm, while under the BAU scenario there would have been 301 million rural individuals
working off the farm in April 2009 (which consists of a half year of growth, adjusted for the
natural—or non-financial crisis related—seasonal differences between September off-farm
employment and April off-farm employment). Instead, because of the financial crisis there were
only 265 million rural individuals working off the farm in April 2009. In other words, the net
impact of the financial crisis on the off-farm rural labor force affected 36 million rural workers

30
(301 million minus 265 million=36 million; this is consistent with the BAU-actual rate gap:
36/520=6.8%).12

The net impact figure, however, is not equal to the number of rural workers that was actually laid
off. This number cannot be deduced from this net gap. The gap between the BAU scenario (April
2009) and the actual level of employment (April 2009) is affected by a number of components.
First, the gap includes those that were laid off between October 2008 and April 2009 and did not
find a job (long-term laid-offs). Second, the gap is also affected by the difference between the
number of workers that were actually laid off between October 2008 and April 2009 and those
that found a new job between October 2008 and April 2009, but had not been working off the
farm in October 2008 (henceforth, the re-hires). Third, there is also a class of new workers that
despite financial crisis were able to find a job between October 2008 and April 2009 (that is, they
were not working in September 2008, but, were working in April 2009—henceforth,
newcomers). Finally, the BAU-prediction (for April 2009) includes rural individuals who did not
find employment off-farm between October 2008 and April 2009, but would have if the financial
crisis had not occurred (delayed entrants). According to our data, during the financial crisis
(between October 2008 and April 2009), the number of long-term laid-offs (that is, rural
individuals that were laid-off after October 2008 and still were not working off-farm by April
2009) was 25 million, which was slightly larger than the number of newcomers (23 million).13

While it is difficult to see from Figure 8, Panel A, there is another important trend that is
occurring with respect to the difference between the BAU trend line and the actual rural off-farm
employment trends. By assumption, since the global financial crisis did not begin until the end of
September 2008, between May 2007 and September 2008 the BAU trend line and actual
employment trend are the same. They begin to diverge in October 2008 and increase through the
rest of the year (November and December 2008). In January 2009, there is a 6 percentage point
gap between the BAU estimated share and actual off-farm employment share. This means that by
January 2009 the net impact of the financial crisis was affecting 12.5 percent of those who
should have been employed in January 2009 had the financial crisis not occurred (including,
long-term layoffs and delayed entrants). The rapid fall in off-farm employment, as we defined it,
demonstrates that many of the stories of large disruptions in rural labor markets were not
unfounded. It is perhaps because of this, and the potential social unrest that might have occurred
in its wake, that the government launched such a robust stimulus package in such a rapid fashion.

Although the initial fall in rural employment was striking, it is even more remarkable that the
decline in rural off-farm employment was arrested quite quickly. It is true that the gap was still
large in the first four months of 2009 (described above), but it was already beginning to narrow
in percentage term. By April 2009 the gap between the BAU estimated share and the actual off-
farm employment share was 6.8 percentage points, which means it was affecting only 11.7
percent of those that would have been employed under the BAU scenario. In the same way that
China’s second quarter GDP figures showed that the decline in growth had stopped falling and
that growth was picking up again, rural off-farm employment also was showing the initial signs
of recovery. In other words, China’s economy was already showing signs of recovery as early as
the first and second quarters of 2009, less than six months into the global financial crisis.

31
 Part 3, 3.2. Financial Crisis and Wages

The effect of the financial crisis extended beyond those who lost their off-farm jobs (both re-
hirees and long-term laid-offs) and those that were unable to find one (delayed entrants). Many
of those that did not lose their job also found that their earnings fell. After rising in real terms
between 2000 and 2008 (Park et al., forthcoming), monthly earnings for rural workers appear to
have fallen. According to our data, the monthly earnings of the typical unskilled worker (who
worked off-farm in both 2008 and 2009) was 1099 yuan per month during 2008. However, in
January-April 2009, the same average unskilled worker was earning only 984 yuan per month. In
other words, the monthly earnings of those workers that worked in both 2008 and 2009 fell by
10.5 percent between the two years.

The same trends between 2008 and 2009 appeared throughout China’s different regions,
although the rate of the fall in earnings differed. In north China the average unskilled worker
earned 1062 yuan in 2008. During 2009 the average wage fell to 842 yuan. This fall of more than
20 percent was higher than that for China overall. The average unskilled off-farm laborer’s
earnings also fell in the south. The decrease in the south, however, was only 7 percent, dropping
from 1113 yuan per month in 2008 to 1037 in 2009.

The difference in the wage decline between North and South China (higher in the North than the
South) is curious given the large decline in employment in the South when compared to the
North. In roughest terms the changes in wages and employment in elasticity terms (%ΔQ/%ΔP)
means that the labor supply elasticity of wages in only 0.4 in North China, while it is 1.4 in
South China. One explanation may be that this is evidence of fragmented labor markets, which
would have implications for studying regional patterns of labor markets.

However, it should be noted that there are many other things going on in China at this time. For
example, in the run up to the financial crisis (the first half of 2008), rising resource and food
prices had China’s government concerned about inflation. In response, the government had
raised interest rates and took measure to reign in bank lending (Yang, 2009). Because the North
has more resource-intensive industries that almost certainly rely more on bank loans (versus the
labor-intensive industries of the South that are self-financed and often financed by non-bank
sources), it is possible that part of the employment effect was due to other factors beyond the
financial crisis. Unfortunately, it is beyond the scope of this part of the report to completely
model these separate labor markets.

In addition, it should also be kept in mind that these are short run effects. It is well documented
in the development literature that in the short run a lot of factors affect employment decisions
beyond wages. For example, information obtained through connections among members of
migration networks is important for facilitating job placement and lowering costs of migration
(e.g., de Brauw and Giles, 2008a and 2008b). Hence, to the extent that there are different factors
that are affecting employment in North and the South, one should not expect wages to equilibrate
immediately across space.

It is difficult to pinpoint precisely why earnings fell. Was it due to a falling hourly wage or a fall
in the number of hours worked? Unfortunately, we do not have information on the number of

32
hours worked per month in 2008 and 2009 for the same workers who worked in both 2008 and
2009. However, when looking at the number of hours of worked per month for those workers for
which the data are available, there is no statistical difference.14

If the number of hours that were worked by workers each month remained the same, this means
that the hourly wage (or daily or monthly wage) adjusted in rural China’s off-farm labor market.
If this were the case, it would be consistent with the reports of wage cuts in the press (Huang,
2009). It would also provide evidence that rural off-farm employment markets are remarkably
flexible. The ability of wages to fall—and fall over a short period of time—may be another
reason that China’s off-farm employment trends already appeared to be beginning to rise again
(between December, 2008 and April 2009) relative to the worst month of the post-financial crisis
period (December 2008).

Part 3, 4. Analysis of Laid-off Rural Workers

In this section we focus on those workers that were laid off as a result of the financial crisis—
both long-term laid-offs and re-hires. In this part of the report we assume that a worker was laid
off due to the financial crisis if he/she were working in September 2008 and at some point of
time between the months of October 2008 and April 2009 he/she lost their job. Of course, we
know that this will be an overestimate of the financial crisis-induced lay-offs. There undoubtedly
would have rural workers who would have been laid off if there had been no crisis. But the
number of rural workers that were laid off between October 2007 and April 2008 was only a
fraction (around 15%) of that in the same months after the crisis (October 2008 and April 2009).
The first part of the section reports on the level of lay-offs. The next part analyzes the
determinants of who was laid-off and who was not. Finally, we examine what those who were
laid-off and who had not found a job by April 2009 were doing. This will help us estimate a rate
of unemployment about seven months after the onset of the crisis.

When gauged against the total number of those employed in the off-farm employment sector in
September 2008 (279 million), the number of workers that were laid-off in the first seven months
of the global financial crisis is staggering. According to our data, 17.6 percent of those that had a
job in September 2009 lost their job between the months of October 2008 and April 2009. Since
more than half of the rural labor force was employed off-farm in September 2009, this means
that 9.4 percent of the total rural labor force, or around 49 million workers, suffered a lay-off.
There is no country in the world that experienced such a large rash of lay-offs in absolute terms;
few suffered so much so quickly with the onset of the crisis.

Although the lay-offs came fast for all workers, we distinguish two distinct types of affected
workers based on duration of dislocation: the long-term laid-offs and the re-hires. In fact, in
April 2009 there were almost equal numbers of long-term laid-offs and temporary laid-offs. Of
the 279 million rural laborers who were working off the farm in September 2008, 8.7 percent
were re-hires (that is, they lost their off-farm job after September 2008, but had already returned
to work off farm by April 2009). During this same period 9.0 percent of China’s rural laborers
could be counted as long-term laid-offs. In other words, the long-term laid-offs were working off
farm in September 2008, but were not working off farm in April 2009. Of the 49 million workers

33
that had lost their jobs between October 2008 and April 2009, 24 million had already found a
new job by April 2009.

Part 3, 4.1. Determinants of Being Laid-off

So who suffered a lay-off? What were the characteristics of the workers that were part of the
long-term laid-off population in April 2009? To answer this question, we use both descriptive
statistics and run a set of descriptive regressions. In the first regression we seek to explain the
determinants of who was laid-off at any point after the financial crisis without regard to whether
or not they had been re-hired by April 2009 (i.e., re-hires plus long term laid-offs). In the second
regression, we focus on the determinants of being a long term laid-off). In our regression model,
we include three determinants of being laid-off: gender; age; and years of education. The
regression, which uses a probit estimator due to the limited nature of the dependent variable (yes-
no), also includes a set of provincial dummy variables.

The descriptive analysis demonstrates that not all workers suffered the same (Table 14). While
there is little evidence of a gender bias (17 percent of men and 18 percent of women were laid-
off—rows 2 and 3), there is a propensity for young and uneducated workers to experience lay-
off. The share of the youngest workers (21%) and the share of the least educated workers (20%)
that were laid off were higher than older and more educated workers (rows 4 to 9). When looking
at the share of long-term laid-offs, it is interesting to note that while the least educated had the
highest incidence of lay-off (13%—row 16), the older workers had a higher propensity to be
unemployed in the long term (13%—row 15).

Results from the probit analysis are consistent with the findings of the descriptive evidence.
Table 15, column 1, provides more evidence on likelihood of lay-off. Older workers were less
likely to be laid-off than younger workers (row 2). Likewise, those workers that were more
educated also were less likely to be laid-off after September 2008 (row 3). Women and men,
however, had an equal chance of losing their jobs (row 1). Hence, the young and undereducated
were those that suffered the most. In fact, this is not surprising given the fact that the export
sector, a sector that employed a lot of young, unskilled workers, was almost certainly where a
disproportionate share of the lay-offs occurred.

The sluggishness of the recovery of the export sector also seems to explain that that same set of
factors explain long-term unemployment (Table 15, column 3). The uneducated laborers are
those most likely to be laid off after September 2008 and still be without a job by April 2009.
There also is no obvious difference across genders.

Beyond the simple model (presented in columns 1 and 3), columns 2 and 4 present the findings
of a new regression model which adds three variables to account for the sector of employment
(industry; construction; and other) and one variable that measures whether the individual was
working off the farm for a wage or was self-employed. According to the findings, the first thing
to note is that our original findings (on gender, age and education) do not change. The signs and
levels of significance are more or less the same when we run the full or partial model (columns 1
vs. 2, rows 1 to 3; columns 3 vs. 4, rows 1 to 3). Second, the results show that workers in the

34
industrial and construction sectors suffered more than those working in the service sector; wage
earners were hurt more than the self-employed (columns 2 and 4, rows 4 to 7).

Part 3, 4.2. Many Laid-off; Few Unemployed

In Figure 9, we show the share of long-term laid-offs who were working off-farm (by definition)
as of September 2008, with the left hand axis at 100%. This share is bounded at zero on the right
hand axis (also by definition, since long term laid-offs are those that were still laid-off in April
2009—so they were not working off-farm). Since the graph space accounts for the time
allocation of all 25 million long term laid-offs represented by the sample, the graph documents
how the long term laid-off workers shifted their employment in the wake of the crisis.

Most long-term laid-offs returned to their village. By April 2009, 67 percent (or two thirds of the
long-term laid-off) returned to their villages and were working either at farming or in non-farm
domestic work. More than half (56 percent) of the long term laid-off workers were farming—in
all cases on their own plots of cultivated land (that is, on the plots that the village had allocated
to them under a 30-year use rights contract). Eleven percent of long term laid-off workers were
working in the home, but not farming. These respondents told us that they were not looking for
off-farm work. Most of those working in the home (and not farming) were young women with
children. Interestingly, although the press reported anecdotes of cases where laid-off workers
went home and encountered some sort of conflict when attempting to return to farming, none of
our respondents reported problems of this sort when asked in April 2009.

It is important to emphasize that those long-term laid-offs who were either working on the farm
or working around the house (and not searching for off-farm employment) were not unemployed.
Most were working as self-employed farm operators. Others were working in the home and were
not searching for a job. Only 33 percent of the long-term laid-offs were still out searching for a
job. As this was one-third of the 9 percent (the share of those working off-farm in September
2008 that were long-term laid-offs), this means that about 8.3 million workers (1/3 of 25 million)
were unemployed in April 2009 as a consequence of the global financial crisis. In other words,
the unemployment rate of the rural economy in April 2009 was 1.6 percent (8.3 million / 520
million). Hence, access to contracted land that appears to have allowed many of those that were
laid off to continue to have access to (own-farm, self) employment. As seen by the decisions of
many laid-off workers, the flexibility of China’s rural economy is based in part on the fact that
almost all households have access to contracted land.

By definition, however, this means that there were some that were hurt. Specifically,
households/individuals that lost access to the land that they had been farming prior to the return
of the unemployed necessarily were less well off. Who were these households/individuals? We
do not have data on all individuals in the village so we are not able to measure the effect on
everyone. However, our survey did ask about rental contracts between landlords (contractors)
and tenants (contractees). While rental land accounts for almost 20 percent of cultivated area in
2008, the vast majority of the land was rented to either family members or to other households in
the same village that are considered “friends.” Indeed, according to our data, in 2008 96.3
percent of rental contracts were between family members or friends. This does not dampen the

35
negative impact on contractees when rented land was taken back. But, it almost certainly allowed
for more amicable settlements and renegotiations. In addition, it should be noted that, according
to our data, 92 percent of rental agreements are either specified for one season or one year.
Because of this, also, there was little reason to believe that there was tension over the breaking of
an agreement.

Part 3, 5. Recovery: One Year after the Crisis

Nearly one year after the financial crisis started, the CNRS data show that China is far down the
road to recovery from the financial crisis—at least in terms of rural employment (Table 16). In
total, 124 individuals who were in the labor force and working off farm in September 2009 had
not found a job by April 2009 (row 1). These are the long-term laid-offs in our sample. By
August 2009, when we re-contacted these individuals, 30 percent more of them had found a job
off farm (row 2). This means that the contribution to the rural unemployment rate due to the
financial crisis was down to only 1.5 percent to 2 percent (about 8 to 10 million individuals).
Clearly, the scare of potential instability driven by rural unemployment posed for China by the
Global Financial Crisis was largely dampened by 11 months after the onset of the crisis. This
study’s findings of continued recovery in employment are supported by data reported by the
China National Bureau of Statistics (CNBS, 2010).

The data suggest that the profile of those who could not find a job by August 2009 is close to that
of individuals who had never left the village—female, older and uneducated (see de Brauw et al.,
2008). While 33 percent of male long-term laid-offs found a job between April 2009 and August
2009, only 25 percent of women did (rows 3 and 4). The difference between those of different
age and education groups were even larger (rows 5 to 10). While 43 percent of those under 30
had found an off-farm job by August 2009, only 17 percent of those over 50 had. Forty-five
percent of long-term laid-offs with more than a high school education had found a job. In
contrast, only 23 percent with less than a middle school education had found off-farm
employment.

Part 3, 6. Conclusion

The immediate shock to rural off-farm employment that occurred with the onset of the global
financial crisis was large. More than 49 million rural workers lost their jobs. However, the size
of this shock is unsurprising. As a producer of consumer goods for the rest of the world, China is
well-integrated with international markets and is thus exposed to crises occurring overseas. What
is particularly striking in contrast to more developed economies of North America and Europe,
however, is the speed of the labor force adjustment in the wake of the crisis.

A number of factors are behind this flexibility. First, the empirical findings in this part of the
report demonstrates that in the immediate wake of the crisis, the migrant laid off worker could
and did return to the family farm. In common with responses in Thailand and Indonesia after the
East Asian financial crisis in 1997/98, the agricultural sector re-absorbed laid-off workers in the
short-term and families remaining behind in home villages absorbed the shock to employment
(Fallon and Lucas, 2002; Frankenberg et al, 2003). As a result of more equal distribution of land
among rural households in China and the fact that most off-farm migrant workers have family

36
members remaining behind in home villages, China probably absorbed even more off-farm
workers in the agricultural sector. Policy-wise, there is an argument to be made for land tenure
arrangements that put cultivated land into the hands of poor households. As we have seen in this
case, even when there are large numbers of workers that have moved off the farm into the cities,
land can play a buffering role when unemployment strikes.

Second, the rapid implementation of a robust macroeconomic stimulus meant that erstwhile off-
farm workers had little time to be upset by their return to agriculture before new off-farm
opportunities appeared in domestic oriented activities in the construction and services sector (Cai
et al., 2009). While this part of the report did not go into the details of the sectoral shift from
tradable to non-traded goods for off-farm employment, it does demonstrate the significant re-
employment of laid-off workers in off-farm sectors prior to the recovery of exports. Falling
wages also helped, allowing employers to hire workers at lower rates—although this may have
hurt members of the rural work force who were not laid off. Behind this broadly favorable view
of the adjustment process, policymakers and development researchers also need to understand
differences in exposure to lay-off and speed of adjustment among subgroups of the off-farm
workforce. Given the concern in recent years over the possibility of growing gender disparities
during the period of state sector restructuring, it is interesting that we do not find significant
gender differences in either exposure to shocks or ability to find new employment.

Education also appears to be an important determinant of both exposure to lay-offs and ability to
cope with lost employment. Consistent with this finding given the high returns of education, off-
farm workers from poorer families were more exposed to layoff. Across the age distribution,
younger workers were more likely to be laid off, but they also found new employment more
readily. Older workers experiencing lay-offs had more difficulty finding new off-farm work.

Our results have implications that extend beyond China. Is it possible that the flexibility of the
off-farm labor force from rural China gives the global labor market much more flexibility than
would initially be expected? With the ability to return to farm employment when a shock occurs,
this reserve army of migrant workers induces considerable flexibility even when developed
country labor markets are beset by sclerosis and other parts of the developing world are
insufficiently integrated with global markets. In a paper by Richard Freeman "Are your wages
set in Beijing" it is argued that wages around the world are not affected by China’s unskilled
wages. However, the flexibility of the off farm labor force (in allowing laid off workers to return
to the farm) has allowed the market for export goods to avoid collapse and even reemerge as
recovery begins. In fact, falling wages may have aided in the recovery of the sector.

37
 Part 4

Other Issues

Part 4, 1. Introduction

In this section we do two things. First, we raise issue about the urban economy/urban labor
market. This is done by extracting a section from a paper by Park, Cai and Du (see citation
immediately below). Second, we discuss several of the issues that are currently emerging as
China’s wage rates are rising fast that may be affecting a.) education decisions in poor rural areas
(which is home to 30 to 40 percent of China’s future labor force); and b.) labor markets a decade
or more from now. There are certainly many other issues that could be discussed in terms of
human capital and China’s future growth and stability, but, time constraints limits us really to a
brief summary of some recent findings and direct the more interested reader to our website:
https://reap.stanford.edu.

Part 4, 2. Can China Generate Enough Jobs?

[Important NOTE: the text and tables in this section of this part of the report (next 5
pages; and Tables 17 to 19) are directly extracted from:

Park, Albert, Fang Cai and Yang Du. 2010. “Can China Meet Her Employment
Challenges? Chapter in Jean Oi, Scott Rozelle and Xueguang Zhou (eds.).
Growing Pains: Tensions and Opportunity in China's Transformation.
Shorenstein APARC Publisher, Stanford, CA.

Scott Rozelle is an editor of the Growing Pains volume.]

Recently, numerous concerns have been raised about the employment situation in China. Some
suggest that the unemployment situation in cities has reached crisis levels, and that finding jobs
has become exceedingly difficult for former state-sector workers, rural labourers from China’s
vast interior regions, and even recent college graduates. Pessimists argue that the economy is
failing to produce enough new jobs to employ the large numbers of new labor market entrants let
alone the newly unemployed. Yet others point to large urban-rural and coastal-interior income
differences and the persistence of China’s hukou system as evidence that those in the rural
interior continue to be excluded from employment opportunities in China’s booming cities and
coastal regions. Such observations suggest that a combination of market and policy failures
could be contributing to the system’s inability to provide jobs equitably to all of China’s able and
willing labourers, which we regard to be the first of China’s major employment challenges.
Whether China is successful in meeting this challenge carries important implications for future
economic performance, social equity, and political stability.

In a neoclassical labor market model with costless mobility, wages are set so that labor supply
equals labor demand and there is no involuntary unemployment. Explaining unemployment

38
requires a theory of disequilibrium that considers the reality of labor adjustment costs, barriers to
mobility, and/or wage rigidities. In such settings, shifts in labor demand or supply can influence
not only the wage level but also the amount of dislocated or unemployed workers. For example,
it may be difficult for former state-sector workers to acquire skills required in the new market
economy and find jobs at wages they find acceptable. If the government stipulates minimum
levels of wages and benefits that are above market-clearing levels, as they have consistently done
in the state sector, it can lead to an excess supply of workers, which can be reduced if labor
demand is increased or labor supply decreased. Changes in labor supply are influenced by
demographic changes, and the supply of labor of different skill levels is determined in part by
access to and the costs and quality of different levels of education. Labor demand is affected by
changes in the quantity and types of goods and services produced in the economy, and the
technologies used to produce them. Such changes can be significantly influenced by economic
growth and government policies that regulate factor prices (i.e., wages or the interest rate),
liberalize international trade and foreign direct investment, support the development of specific
industries, or influence innovation and technology adoption. All of these factors can affect
workers with different skill (or education) levels differently.

Part 4, 2.1 Unemployment and Labor Force Participation.

Our first approach to investigating whether there is a shortage of jobs in China is to examine
estimates of the unemployment rate in China. The lack of reliable and timely unemployment rate
estimates consistent with internationally standard definitions is a significant impediment to the
design of appropriate macroeconomic and social insurance policies. Internationally, unemployed
workers are typically defined to be those who did not work in the past week, were not
temporarily on vacation, sick, or participating in training activities before going back to a job,
and actively looked for work in the past month. The 2000 census and 2005 mini-census ask
about work in the past week and about the reason for not working if the respondent did not work,
with one possible response being that the respondent did not work but was looking for work.
These questions can be used to construct unemployment rate estimates, even though the
questions are not standard. Giles, Park, and Zhang (2005) estimate that for five large cities
surveyed using a specially designed instrument, the census-based unemployment rates
overestimated the unemployment rate based on an internationally standard definition by about 30
percent.

The evidence reveals that alarmist and anectodal accounts of high unemployment in China’s
cities are overly alarmist. According to the 2005 mini-census data, China’s urban unemployment
rate on October 31, 2005 was 5.2 percent, down from 8.1 percent on October 31, 2000 (Table
17). If one adjusts for the upward bias in the census estimate relative to international norms, the
unemployment rate was less than 4.0 percent. Using data from the 2005 China Urban Labor
Survey in 5 large cities and extrapolating to all of China, the urban unemployment rate was
estimated to be 4.4 percent in 2005, compared to 7.3 percent in 2002. This independently
verifies the downward trend in unemployment. However, estimates of the unemployment rate
based on labor force survey data on the economically active and employed populations produces
a somewhat different trend, with unemployment first falling then rising from 2000 to 2005, with
a slight overall drop in unemployment from 7.6 percent in 2000 to 7.0 percent in 2005 (Table

39
17). Still, the latter number is within shouting distance of the 5.2 mini-census estimate, even
though it remains unclear why there is a discrepancy at all since both are presumably based on
the same data. One possibility is that the economically active population includes some persons
who are out of the labor force using a strict definition of the unemployed.

According to the census data, the labor force participation rate fell from 69 percent in 2000 to 65
percent in 2005, or by nearly a percentage point each year (Table 17, last column). Data from
labor force surveys show a similar fall, from 66 percent in 2000 to 63 percent in 2005. Over the
past decade, the labor force participation rate fell by 10 percent, a quite dramatic reduction. This
fall might give one pause if one believed that many of those leaving the labor force were doing
so involuntarily and felt discouraged about finding a new job, and thus were similar to the
unemployed. But another perspective is that adjustment was unavoidable given a competitive
market environment in which the government could no longer afford to subsidize non-
productive, or surplus labor. As in other transition economies, this led naturally to a reduction in
historically high labor force participation rates. None of this, of course, mitigates the painful
adjustment experienced by older workers whose skills were formed in an outdated system and
who had high expectations for their job security and other benefits. The government has tried,
with limited success, to cushion the shocks associated with job loss (Cai, Giles, and Park, 2006).
Today, for better or worse, most workers dislocated by the major restructuring of the late 1990s
have either found new jobs, transitioned to retirement, or left the labor force. The most difficult
part of the adjustment process appears to have passed.

Which groups of workers are currently finding it most difficult to find work? In Table 18, we
report unemployment rates and labor force participation rates in 2005 and 2000 broken down by
gender, age, education, and region. In 2005, women had a higher unemployment rate than men,
6.1 percent compared to 4.4 percent, and a much lower labor force participation rate, 57.1
percent versus 73.7 percent. These gender differences are similar to those in 2000.
Unemployment rates tend to fall with age, being highest for the youngest workers aged 16 to 25
(9.1 percent). While this may reflect particular problems faced by new entrants to the labor
force, unemployment rates fell the most for this group when compared to 2000, when the
unemployment rate was over 15 percent. Also, younger workers in many countries tend to
experience higher unemployment rates as they try to match their skills to employers and move
more frequently from job to job.

Part 4, 2.2 Employment of College Graduates

Recently, a considerable amount of media attention both within and outside China has been paid
to the difficulty that recent college graduates have had in finding desirable jobs. Many have
attributed this to the excess supply of graduates resulting from China’s aggressive expansion of
higher education in recent years. The number of graduates from regular institutions of higher
education increased from 9.5 million in 2000 to 37.8 million in 2006 (National Bureau of
Statistics, 2007). To look at this issue more closely, we present data on unemployment and labor
force participation rates for those aged 16 to 25 in Table 19, broken down by level of education.
The data do show an increase in the unemployment rate and decline in the labor force
participation rate for those graduating from regular college. The unemployment rate for this

40
group increased from 6.3 percent in 2000 to 11.9 percent in 2005, while the labor force
participation rate fell from 96.3 to 90.1 percent over the same period. Interestingly, the increase
in the unemployment rate contrasts sharply with declines in the unemployment rate for all other
education levels over the same period. The decline in labor force participation occurred for all
education levels, perhaps reflecting the fact that people were pursuing higher levels of
educational attainment or had a greater propensity to postpone or avoid employment.

While the data do support greater policy attention being placed on facilitating the employment of
recent college graduates, larger trends work in favour of successfully absorbing college
graduates into the workforce. First, the returns to college education in urban areas have
increased tremendously over time, from less than 12 percent in 1988 to 37 percent by 2001
(Zhang et al, 2005; Giles, Park, and Wang, 2007; Li et al, 2007), and the returns to schooling are
highest for the youngest cohorts. This suggests that increases in the demand for college-educated
workers is far outpacing increases in supply. The overall percentage of the national urban labor
force that is college-educated remains less than 10 percent, while global integration and rapid
technological change increasingly place a premium on high skill workers. It also could be that
college graduates need time to adjust downward unrealistically high expectations about initial
jobs or that they are willing to wait for better initial matches because of the perceived importance
of initial placements to future career development. Modest initial wages for college graduates
are balanced by the fact that wages rise most steeply at younger ages (Cai, Park, and Zhao,
2008).

Part 4, 2.3. Industrial Policy, Financial Reform, and the Demand for Labor.

As noted earlier, government policies can affect employment opportunities in the economy.
During the period of economic restructuring, Chinese leaders felt frustrated at times that China’s
double-digit growth was not generating more new jobs. Relatively slow job creation can be
partly linked to policies in other sectors that were formulated without consideration of their
effects on aggregate labor demand. First, industrial development strategy has emphasized the
development of heavy, capital-intensive industries, such as automobiles, machinery, and steel
that are viewed as keys to modernization, sustained GDP growth, and government revenue
mobilization. These sectors received preferential access to cheap credit, favorable tax treatment,
and supportive public investments. Investments generally did not favor light industries that have
the capability to create more employment opportunities, especially for unskilled workers. Entry
into nonindustrial, labor-intensive sectors such as services was often restricted, limiting their
development (Guo, 1999). Especially after 1998 when the government initiated expansionary
fiscal and monetary policies, the cost of investment funds for large enterprises was very low. For
these reasons, industrial development has been very capital intensive (Liu and Cai, 2004).

Large, capital-intensive firms have continued to receive favorable treatment from state-owned
commercial banks despite recent reforms in the banking system. Banks had plenty of funds to
lend thanks to robust economic growth and large increases in personal savings. Under strong
pressure to reduce nonperforming loans, banks perversely had an incentive to steer funds to
large, state-owned enterprises or state-supported projects implicitly backed by the government.
State-controlled interest rates were kept at below-market levels, creating incentives for firms to
choose capital-intensive technologies. In addition to reducing overall labor demand, if capital is

41
skill biased, it makes unskilled workers relatively worse off. On the other hand, private
enterprises, many of which were small and medium in size, found it difficult to obtain loans from
state commercial banks and instead turned to alternative financing channels, including foreign
direct investment. Despite these restrictions, the private sector has accounted for the majority of
new job creation since the mid-1990s (Rawski, 2002). Continued reform of the banking system
through greater competition, including from foreign and private banks, could promote more
lending to the private sector and increase labor demand.

Part 4, 2.4. Demography and Labor Supply

China has reaped a demographic dividend that has increased the size of the labor force each year.
Because of the age structure of China’s population, China’s labor force grew rapidly by 3 percent
per year during the 1980s and early 1990s and at a slower rate of about 1.5 percent per year since
then (Mason and Wang, 2008). As can be seen from the population pyramid for 2005 in Figure
10, China currently has more people entering their twenties (i.e., entering the labor force) than
entering their 60s (retiring). But after 2020 this will have reversed, so that the labor force will
begin to decline in absolute numbers (Figure 10). As seen in Figure 11, the dependency ratio,
defined as the number of children and elderly relative to the number of those of working age,
will reach its low point sooner, in 2013, after which China will become a rapidly aging society.
As that process occurs, the rising dependency ratio will slow per capita growth rates. However,
China could reap a second demographic dividend as older citizens with greater savings enable
the financing of investments that raise labor productivity (Mason and Wang, 2007). The
importance of increasing labor productivity to sustain increases in living standards is an
important point to which we will return. In summary, over the next 15 years labor force
increases will be modest in comparison to the speed of China’s economic growth, and
subsequently the labor force will shrink, which should lead increasingly to labor scarcity rather
than surplus.

For urban labor markets, the large increase in rural migrant labor has been an even more
important source of growing labor supply. This, in part, has been due to relaxation of
institutional restrictions inhibiting migration, but it also reflects urban biases in public
investments and other policies that increase the relative productivity of working in urban versus
rural areas. China’s investment in agriculture is small in comparison to other countries at similar
levels of development (Huang, Otsuka, and Rozelle, 2008). Through various channels (e.g.,
taxation, pricing policies, and credit allocation), a large amount of resources have been extracted
from the agricultural and rural sectors to support urban industrialization (Cai and Lin, 2003, p.
129). One of the goals of the Hu government’s new socialist countyside initiative, supported by
increased public investments and social spending in rural areas, has been to relieve migration
pressure on cities. Some have attributed recent labor shortages to successful pro-rural policies.

Part 4, 3. Is China Becoming a Victim of Its Own Success?

This is the extended abstract of a report written for and submitted to the World Bank (Philip
O’keefe) on May 25, 2011. The purpose of the report was to supply background information for

42
the “Big Ideas” project, an initiative by the President of the Bank to engage China in some high
level thinking about the future of its development. We wrote our report on human capital
investment.

The organization of the report began in Section 1 with a review of the China’s modernization
successes and challenges. Our premise is that to become a modern nation with an innovation-
based economy China’s industrial/service sector will experience rapidly rising wages and needs
to restructure its economy into one that can afford to pay high wages and be competitive
internationally. One of the key constraints to this transformation may be the low level of human
capital of its labor force (especially the labor force coming out of poor rural areas). We have a
short (speculative) discussion of what would happen if China does not meet this human capital
challenge.

The rest of the report (Sections 2 to 5) examined the nature of human capital from poor rural
areas and what can be done to improve it. In Section 2 we examined the current symptoms of the
failure of rural education, focusing primarily on the low levels of matriculation into college and
high school. Few barriers are seen once rural students enter high school; they are as competitive
as urban students through high school and during the college entrance exam. Rather, the main
barriers are seen to be twofold: high levels of tuition for high school; and the lack of
competitiveness of rural students as they approach high school. In other words, they just cannot
compete and even when they can many cannot afford it. It is shown that when students are told
that high school is free, effort in junior high rises and matriculation to upper secondary school
also rises.

In Section 3, we sought to demonstrate another reason for low levels of matriculation to

academic high school: there are many students (and increasingly more) who are electing to NOT
finish junior high school. Despite the fact that tuition and fees have been eliminated for junior
high school (grades 7 to 9), we show that junior high school is not truly free; there is an
opportunity cost that is high and rising (especially as China’s unskilled wage rate rises). Because
of this (despite the fact that it is legally compulsory to finish nine years of education,), dropout
rates from junior high school in poor rural areas are extremely high. China’s competitive school
system makes the problem more serious. In this section we show, however, that a simple
Conditional Cash Transfer program (“if you keep your child in junior high school, the parents
will receive a payment”) helps to dramatically reduce drop outs. Interest in school is also shown
to rise.

In Section 4, the report tried to identify what is probably at the crux of the problem: why do
students from poor rural areas perform so poorly (relative to students from urban areas). The
problem is of course partly rooted in the poor facilities and teachers that serve rural areas.
However, as we repeatedly state, the government has invested heavily in facilities and teacher
training/salaries in recent (and while more is needed, it is an area that is improving). The main
point of Section 4 is that a very real problem of students in poor rural areas is that they are
unhealthy and lack nutrition. Thus, even if the state provides better facilities and teachers, if
students are sick or malnourished, they will not be able to take advantage of the new
investments. In the section we show that neglected diseases, such as anemia, intestinal worms
and nearsightedness, are nearly unbelievably widespread and have truly profound negative

43
effects on education performance. We show in this section that programs that pass out
multivitamins (over the counter, readily available, with almost ZERO side-effects), deworming
medicines (also readily available, very cheap and also with almost zero side effects); and
eyeglasses (ditto), that test scores can rise dramatically. Mental health improvements and self-
confidence have also been shown to improve.

In the last section we spun out our final argument. CHINA HAS EXACTLY ENOUGH TIME
STARTING NOW. There is a crisis on the brink of occurring; it may be so bad that it may
threaten the future of China’s growth and stability. But, if China starts now, there is time to
remedy the problem. But, the response should not be tentative or piecemeal. WAR NEEDS TO
BE DECLARED ON RURAL EDUCATION—NOW. Why? According to the report (especially
sections 3 and 4), the problems are so common that it is almost possible to say that in many areas
MOST CHILDREN ARE IN DANGER OF DROPPING OUT; and in many poor areas MOST
CHILDREN are suffering from diseases and medical/optical conditions that are reducing their
human capital. This is the BAD NEWS. The GOOD NEWS is that we show that with relatively
simple and inexpensive interventions that Making High School Free with increase effort in junior
high school; Conditional Cash Transfer programs can reduce drop outs; and anemia, intestinal
worms and nearsightedness can be overcome and educational performance improved.
Investments into ambitious Early Childhood Education programs (and more—e.g., nutrition
programs for pregnant women and infants; information programs; etc) are also needed.

Which ones are needed? THERE IS NO CHOICE; ALL OF THEM ARE NEEDED. ALL OF
THEM ARE NEEDED NOW. Indeed, in a WAR effort is needed on all fronts. However, this
should not be looked on as a burden. Instead, it should be thought of as LOW HANGING
FRUIT. China—with levels of investment that are lower than transportation budgets or space
programs—can begin to turn around rural education now. More, long run investments will be
needed in rural schools (and schools in migrant communities). Providing high quality education
to rural and migrant communities will be a long term battle, as it is in all countries. There are
relatively easy victories that can be gained now, if China starts now. It might even contribute to
the even longer run efforts to make China a peaceful, wealthy, modern nation.

For access to the full report, please contact the authors.

44
 Complete Sample

100%
Percent of Workforce

80%

60%

40%

20%

0%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Year

Men

100%
Percent of Workforce

80%

60%

40%

20%

0%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Year

Women

100%
Percent of Workforce

80%

60%

40%

20%

0%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Year

off-farm off&on-farm farm only

Source: Authors’ survey.

Notes: Each line shows cumulative percentages of all individuals, men, or women in the labor force.
The gap between the top horizontal line of each panel (100%) and the upper most trend line is the
percentage of people in full time farming. Off-&on-farm refers to individuals who work both off- and
on-farm.

Figure 1 (part 1 of report). Percentage of Rural Labor Force Engaged in Off-farm and On-
Farm Employment

45
 Complete Sample

25%
Percent of Total Workforce

20%

15%

10%

5%

0%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Year

Men

18%
Percent of Total Workforce

16%
14%
12%
10%
8%
6%
4%
2%
0%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Year

Women

9%
Percent of Total Workforce

8%
7%
6%
5%
4%
3%
2%
1%
0%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Year

Migrants Self-Emp. Migrants Self-Employed Local wage Eeaners

Source: Authors’ survey.

Notes: Each line shows total percentages of all individuals (men or women) engaged in that type of
work.

Figure 2 (part 1 of report). Percentage of Total Labor Force Engaged in Different Types of
Off-Farm Work.

46
 Individuals aged 16-20

100%
Percent of Workforce

80%
60%
40%
20%
0%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Year

Individuals aged 26-30

100%
Percent of Workforce

80%
60%
40%
20%
0%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Year

Individuals aged 41-50

100%
Percent of Workforce

80%
60%
40%
20%
0%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Year

off-farm off&on-farm farm only

Source: Authors’ survey.

Note: See Figure 1 for description of figures.

Figure 3 (part 1 of report). Percentage of Rural Labor Force Engaged in Off-farm and On-
Farm Employment, by range of ages.

47
 Jiangsu

Percent of Workforce 100%

80%
60%
40%
20%
0%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Year

Jilin

100%
Percent of Workforce

80%
60%
40%
20%
0%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Year

Sichuan

100%
Percent of Workforce

80%
60%

40%
20%
0%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Year

off-farm off&on-farm farm only

Figure 4 (panels A to C). Rural Labor Force Participation by Province, 1995 to 2007
(part 1 of report)

48
 Shanxi

100%
Percent of Workforce

80%
60%
40%
20%
0%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Year

Hebei

100%
Percent of Workforce

80%
60%

40%

20%

0%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Year

off-farm off&on-farm farm only

Figure 4 (panels D and E). Rural Labor Force Participation by Province, 1995 to 2007

(part 1 of report)

49
 0.57
0.56
0.55
0.54
0.53
0.52
0.51
0.50
0.49
0.48
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

Estimate1 Estimate2 Estimate3

Source: deBrauw et al., 2008.

Figure 5 (part 1 of report). Estimated Proportion of Household Farm Labor Force that is Female,
1990 to 2000.

50
 14

12

10 China

8 India
World
6
USA
4 EU
Japan
2

0
2000 2001 2002 2003 2004 2005 2006 2007 2008
-2

Panel A: Annual growth rates of GDP (%), 2000 to 2008

15

10
China
5 India
USA
0 EU
2008 Q1 2008 Q2 2008 Q3 2008 Q4 2009 Q1 2009 Q2
Japan
-5

-10

Panel B: Quarterly growth rates of GDP (%) from Quarter 1, 2008 to Quarter 2, 2009.

Data source: IMF, 2009

Figure 6 (part 3 of report). Annual and monthly growth rates of GDP (%) in the selected
countries, 2000 to 2009.

51
 80
70
60
BAU
50
40
Actual—through
30 April 2009
20
10
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Panel A: China

80
70 South: BAU

60
50 South: Actual—
through April 2009
40
30 North: BAU
20
10
North: Actual—
0 through April 2009
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Panel B: South (top lines) and North China (bottom lines)

Data source: Authors’ own data (CNRS dataset)

Figure 7 (part 3 of report). Share (%) of rural labor force with off-farm employment in China,
actual and under the assumption of Business as Usual (BAU), 2000-2009

52
 65

55

BAU
45
Actual

35

25
May-07

Jul-07

Sep-07

Nov-07

Jan-08

Mar-08

May-08

Jul-08

Sep-08

Nov-08

Jan-09

Mar-09
Panel A: China

65
60
South - BAU
55
50 South - Actual
45
40 North - BAU
35
North - Actual
30
25
May-07

Jul-07

Sep-07

Nov-07

Jan-08

Mar-08

May-08

Jul-08

Sep-08

Nov-08

Jan-09

Mar-09

Panel B: South and North China

Data source: Authors’ own data (CNRS dataset)

Figure 8 (part 3 of report). Monthly share (%) of rural labor force with off-farm employment in
China, actual and under the assumption of Business as Usual (BAU), May 2007 to April 2009

53
 100%
90%
80%
70%
Searching for off farm work
60%
Working at home
50%
Working on farm
40%
Working off farm
30%
20%
10%
0%
Sep-08

Oct-08

Nov-08

Dec-08

Jan-09

Feb-09

Mar-09

Apr-09
Data source: Authors’ own data (CNRS dataset)

Figure 9 (part 3 of report). Tracking the Employment/job search Status of Rural Off-farm
Workers who have become Long-term, Laid-offs after Global Financial Crisis, September 2008
to April 2009 in China.

54
Figure 10 (part 4 of report). China Population Pyramids, 2005 and 2020.

[Extracted from: Park, Albert, Fang Cai and Yang Du. 2010. “Can China Meet Her
Employment Challenges? Chapter in Jean Oi, Scott Rozelle and Xueguang Zhou (eds.).
Growing Pains: Tensions and Opportunity in China's Transformation. Shorenstein
APARC Publisher, Stanford, CA.]

55
 90
80
dependence ratio (%)

70
60
50
40
30
20
10
0
1949
1954
1959
1964
1969
1974
1979
1984
1989
1994
1999
2004
2009
2014
2019
2024
2029
2034
2039
2044
2049
youth dependence elderly dependence

Figure 11 (from part 4 of report). China’s Demographic Dividend: Dependency Ratios, 1949 to
2049

[Extracted from: Park, Albert, Fang Cai and Yang Du. 2010. “Can China Meet Her
Employment Challenges? Chapter in Jean Oi, Scott Rozelle and Xueguang Zhou (eds.).
Growing Pains: Tensions and Opportunity in China's Transformation. Shorenstein
APARC Publisher, Stanford, CA.]

56
 Table 1 (part 1 of report). Descriptive Statistics for Selected Variables
Variable Mean Standard deviation
Gender(1=male) 0.51 0.50
Years of education 8.0 2.89
Skill training, 2004(1=yes) 0.161 0.367
Household's total land area, 2007(mu) 6.96 38.71
Value of durables, 2007(yuan) 4926 11685
Household's labor force 2.89 1.17
Household size 4.29 1.58

Source: Authors’ survey.

Table 2 (part 1 of report). Comparison of location of migrant employment in percentage of

migrants working in specific locations by age in 1995 and 2007.

Off farm job located within:

Own county Province, but Another Province

outside of county

All Off-Farm Workers

2007 30 24 46
1995 a 36 29 35

Workers under 30 years old

2007 21 25 54
1995 31 31 38

Workers over 30 years old

2007 35 35 30
1995 40 32 28

Source: Authors’ survey.

a
For example, the table compares workers who were 25 years old in 1995 with workers who
were 25 years old in 2007.

57
Table 3 (part 1 of report). Comparison of Labor Participation Rates in Percentage of Individuals
that Participate in the Off-farm Labor Force by Age Categories, 1990, 2004 and 2007.

Percentage with off-farm work in

1990
age (from
cohorts deBrauw et 2004 (our data) 2007 (our data)
al. (2002)
16-20a 23.7 74.0 81.3
21-25 33.6 82.2 83.6
26-30 28.8 72.8 81.7
31-35 26.9 67.8 73.9
36-40 20.5 52.5 68.9
41-50 20.8 40.9 49.7

Source: Authors’ survey.

a
For example, the table compares workers who were between ages16 and 20 in 1990 with
workers who were ages 16 to 20 in 2007.

Table 4 (part 1 of report). Comparison of Labor Participation Rates in Percentage of Individuals

that Participate in the Off-farm Labor Force by Age Categories and Gender, 2004 and 2007.

percentage with off-farm work in

2004 2007
age cohorts male female male female
16-20 86.4 63.5 85.5 76.9
21-25 87.8 64.9 93.5 70.3
26-30 84.2 44.7 87.7 69.8
31-35 78.3 28.2 90.2 43.5
36-40 49.3 19.4 63.5 28.4
41-50 38.9 10.9 45.8 16.0

Source: Authors’ survey.

58
 Table 5 (part 1 of report). Participation in On-Farm by Men and Women, China Health and
Nutrition Survey, 1991-2000
Year
1991 1993 1997 2000

Average Total Reported Hours of Farmwork 3682 2851 2420 2023

(3211) (2510) (2207) (2177)
Share of Households Reporting Positive Hours 0.89 0.87 0.80 0.72
of Farmwork
Average Hours of Farmwork Done by Women 1943 1487 1220 1081
(1868) (1481) (1208) (1237)
Number of Observations 2149 2105 2216 2314
Notes: Standard deviations in parentheses. Year refers to the year survey was completed. Farm work is defined to
include time spent “gardening” and “cropping,” and omits time spent tending livestock or fishing.
Source: CHNS data cited in deBrauw et al. (2008).

Table 6 (part 2 of report). Numbers of households participated in cultivated land

rental market in 2000 and 2008.
Total Rented-out Rented-in
2000 836 69 130
(8.3) (15.6)
2008 836 144 144
(17.2) (17.2)
Sum 1672 213 274
(12.7) (16.4)

Note: The numbers in parentheses are percentage of samples with rented-out or

rented-in land (%).
Sources: Authors’ surveys in 2000 and 2009.

59
Table 7 (part 2 of report). Rental land and off-farm employment by provinces in
2000 and 2008.
Percentage of Percentage of Household
Number of family
households households head had off-
labors (excluding
with rented-out with rented- farm job
household head) had
land in land (0=No，
off-farm job
(%) (%) 1=Yes)
2000 8.3 15.6 0.21 0.32
Zhejiang 19.9 31.3 0.24 0.49
Hebei 10.6 15.5 0.25 0.33
Hubei 7.3 19.7 0.21 0.29
Sichuan 4.6 8.6 0.17 0.28
Liaoning 4.2 11.2 0.22 0.34
Shaanxi 2.7 7.1 0.12 0.18

2008 17.2 17.2 0.41 0.89

Zhejiang 34.4 21.4 0.60 1.44
Liaoning 21.4 13.9 0.44 0.89
Hebei 17.9 24.5 0.48 1.11
Hubei 15.0 25.7 0.30 0.59
Shaanxi 10.6 13.7 0.32 0.67
Sichuan 5.6 6.3 0.34 0.66
Note: The provinces are ordered by the numbers presented in the first column.
Sources: Authors’ surveys in 2000 and 2009.

60
Table 8 (part 2 of report). Characteristics of households and shares of cultivated land rented-in
and rented-out in 2000 and 2008.
2000 2008
Percentage (%) of Percentage (%) of
households with households with
Sample Sample
Rented- Rented- Rented- Rented-
out in out in
Household head had off-
farm job
Yes 172 10.5 12.8 345 21.7 17.1
No 664 7.7 16.3 491 14.1 17.3
Other family member had
off-farm job
Yes 211 10.4 11.8 499 19.4 17.8
No 625 7.5 16.8 337 14.0 16.3
Number of family labor
≤1 24 20.8 16.7 61 32.7 14.8
[2,3] 609 8.2 16.1 570 17.4 17.1
≥4 203 6.9 13.7 205 12.2 18.1
Own cultivated land
≤ 0.2 ha 235 10.6 21.3 289 16.3 21.5
[0.2ha, 0.5 ha] 380 6.8 11.8 336 19.4 13.7
> 0.5 ha 221 8.1 15.8 211 15.1 17.1
Ag_Equipment, yuan/haa
=0 111 18.0 12.6 168 38.7 7.1
(0, 500] 163 7.4 8.6 128 21.8 15.6
(500, 5000] 338 6.8 15.4 241 10.3 24.1
>5000 224 6.3 22.3 299 8.7 18.1
Wealth (per capita assets) a
≤3000 yuan 396 4.8 13.4 166 15.1 13.9
(3000, 10000 yuan] 274 8.0 18.6 222 14.9 17.6
>10000 yuan 166 16.9 15.7 448 19.2 18.3
Sources: Authors’ surveys in 2000 and 2009.
a
Note that all variables that are in value terms were put into real 2000 yuan terms using the
Rural Consumer Price Index from the China Statistical Yearbook (China National Statistical
Bureau, 2009).

61
Table 9 (part 2 of report). Estimation results of participation in cultivated land
rental market in 2000 and 2008.a
Probit c OLS-FE
Rented-out Rented-in Rented-out Rented-in
Head_OFt-j 0.03* -0.03 0.06** -0.04
(0.02) b (0.02) (0.02) (0.03)

Other_OFt-j 0.04*** -0.01 0.05** 0.03

(0.01) (0.02) (0.02) (0.02)

Family labors -0.04*** 0.01 -0.02* -0.01

(0.01) (0.01) (0.01) (0.01)

Own cultivated land (ha) 0.03** -0.05*** 0.02 -0.10***

(0.01) (0.02) (0.02) (0.03)

Ag_Equipment (Yuan/ha) -0.01*** 0.01*** -0.01*** 0.01***

(0.00) (0.00) (0.00) (0.00)

Wealth (Yuan/person) 0.01** 0.01 0.01* 0.01

(0.01) (0.01) (0.01) (0.01)

Constant 0.06 0.22*

(0.08) (0.09)
R2 0.23 0.12 0.09 0.04
F value 286.0 185.0 13.9 5.9
Prob> F 0.00 0.00 0.00 0.00
Note: a) All numbers in parentheses are robust standard errors; b) ***, ** and *
represent statistically significant at 1%, 5% and 10%, respectively; c) The marginal
effects are estimated by Probit model, so the country dummy variables
disappeared.

62
Table 10: Investment Levels in Households, by Migration Status and by Rich and
Poor Areas.
Total Consumptive Productive
Category Investment Investment Investment
Households in Rich Areas
Return Migrant 25900 14720 11180
Households (35390) (27310) (18820)
Migrant 24630 18990 5640
Households (45700) (40850) (10160)
Non-Migrant 19980 8010 6900
Households (31930) (12660) (26810)
Households in Poor Areas
Return Migrant 21510 13770 7740
Households (24640) (20120) (11600)
Migrant 17730 12030 5700
Households (29750) (26210) (8890)
Non-Migrant 15800 8380 7420
Households (24050) (14270) (15070)
Source: deBrauw and Rozelle (2008)

Notes: All figures are expressed in yuan, and households above 200,000 yuan have
been eliminated as outliers. The category “households without migrants” does not
include households that also have return migrants living in them. Standard deviations
in parentheses. “Rich areas” include the richest county in all provinces.

63
Table 11: Effects of Previous Migration and Return Migration on Change in Cumulative
Consumptive Investment.
Specification
(1) (2) (3) (4) (5)
Lagged 0.56 0.80 1.27 0.78 0.76
Investment (32.73)** (13.86)** (2.59)** (12.43)** (12.27)**
Previous Out and Return Migration (lagged one period)
Number of 3062 2617 2619 2136 2130
Migrants (4.22)** (2.94)** (1.88)* (2.35)** (2.35)**
Number of 4027 1803 2693 922 914
Return Migrants (2.89)** (1.02) (1.01) (-0.51) (0.51)
Other Controls
Land −200 −112 −34.8 −23.4
Endowment (mu) (0.78) (0.35) (0.11) (0.09)
Men, aged 747 −73.0 −214 −197
16-35 (0.82) (0.06) (0.19) (0.17)
Women, aged −1235 −1354 −1415 −1394
16-35 (1.55) (1.31) (1.38) (1.35)
Men, aged 1352 23.0 −468 −396
36-59 (0.95) (0.01) (0.27) (0.23)
Women, aged 79 1265 777 833
36-59 (0.06) (0.82) (0.5) (0.53)
Men, aged 1112 −226 −1044 −1051
60 and over (0.95) (0.09) (0.40) (0.40)
Women, aged 1052 1337 292 300
60 and over (0.53) (0.55) (0.12) (0.12)
Experience of 490 367
Head (1.83)* (0.8)
Experience, 1.96
Squared (0.22)
Source: deBrauw and Rozelle (2008)

Notes: *- indicates significance at the 10 percent level; **- indicates significance at the 5 percent
level. Household fixed effects are included in each equation. investment variable; specifications
(2), (4), and (5) use the second lag of investment as an instrument for the Specification (1) does
not instrument the lagged first lag; 2925 and in all others is 2340.for the differenced first lag, as
suggested by Anderson and Hsiao (1981). Sample size in specification (1) is and specification (3)
uses a differenced estimator with the second lag of investment as an instrument

64
Table 12: Effects of Previous Migration and Return Migration on Change in Cumulative
Investment, by type of investment and by rich and poor, eliminating households that have
had a fen jia over the last five years.
All Households Households
Investment Type
Households in Rich Areas in Poor Areas
Effect of Migrants on:
Consumptive 2073 3877 2374
Investment (2.04)** (0.98) (3.10)**
Productive −133 1159 −82
Investment (0.13) (0.19) (0.24)
Total 1215 4274 1823
Investment (0.81) (0.54) (2.01)**
Effect of Return Migrants on:
Consumptive 784 775 1700
Investment (0.44) (0.10) (1.12)
Productive −2450 −1487 −750
Investment (0.21) (0.12) (1.04)
Total −2172 −1263 −228
Investment (0.72) (0.08) (0.12)
Source: deBrauw and Rozelle (2008)

Notes: **-indicates significance at the 5 percent level. The same specification is used as in
column 5 of Table 11. Household fixed effects are included in each equation, and the lagged
investment is instrumented with the second lag of investment. Sample size is 2340; 484
observations are in rich areas and 1856 households are in poor areas.

65
Table 13 (part 3 of report). Descriptive statistics for selected variables used in the analysis of the
rural China sample, May 2007 to April 2009.
Sample Mean Standard Deviation
(Proportion)
Off-farm employment 2,803 0.63 0.49
By sex
Male 1,555 0.75 0.45
Female 1,248 0.48 0.50
By age group
<=30 years 733 0.83 0.38
30~50 years 1,173 0.67 0.48
>50 years 897 0.38 0.48
By education level
Elementary school or less 1,170 0.47 0.50
Middle school 1,302 0.72 0.46
High school or higher 331 0.81 0.41
Data source: Authors’ own data (CNRS dataset).

Table 14 (part 3 of report). Descriptive statistics for those in the rural China sample that were
laid-off (and re-hired) between September 2008 and April 2009.
Whether lost off-farm
Whether lost off-farm job after September 2008
Sample job after September and did not find a new
2008 (1=yes, 0=no) a, c one till April 2009
(1=yes, 0=no) b, c

0.18 0.09
Total 1,415
(0.37) (0.28)
By sex
0.17 0.08
Male 946
(0.37) (0.28)
0.18 0.10
Female 469
(0.36) (0.29)
By age group
0.21 0.10
<=30 years 529
(0.39) (0.29)
0.15 0.07
30~50 years 629
(0.35) (0.25)
0.17 0.13
>50 years 257
(0.38) (0.34)
By education level
0.20 0.13
Elementary school or less 420
(0.40) (0.33)
0.17 0.07
Middle school 763
(0.36) (0.26)
0.14 0.07
High school or higher 232
(0.35) (0.27)
a
This includes long-term laid-offs (those that were working off-farm in September 2008 and not in April 2009) and
re-hirees (those that were working off-farm in September 2008, was laid-off, but, were reemployed off-farm by
April 2009).
b
This includes only long-term laid-offs.
c
Standard deviation in the parentheses.
Data source: Authors’ own data (CNRS dataset).

66
Table 15 (part 3 of report). Estimated probit results of determinants of being laid-off of rural off-
farm job in China due to global financial crisis between September 2008 and April 2009.
Once lost job in September 2008 – Once lost job and did not find a new one
April 2009 in September 2008 - April 209
(1) (2) (3) (4)
-0.006 0.007 0.007 0.006
Sex (male=1, female=0) (0.023) (0.023) (0.017) (0.016)
-0.003*** -0.002** -0.0005 -0.0002
Age (years)
(0.01) (0.001) (0.0008) (0.0007)
-0.011*** -0.010*** -0.007*** -0.007***
Education (years)
(0.004) (0.003) (0.003) (0.002)
Sector dummy (compared to
commercial services)
0.08** 0.007
Industry
(0.04) (0.023)
0.13*** 0.01
Construction
(0.15) (0.03)
0.24*** 0.14***
Agriculture
(0.08) (0.07)
0.03 0.006
Others
(0.04) (0.023)

Wage-earning (compared to 0.13*** 0.10***

self-employed) (0.02) (0.01)

Province dummy (compared

to Hebei)
0.08* 0.05 0.02 -0.003
Shaanxi
(0.05) (0.04) (0.03) (0.022)
0.01 -0.02 -0.005 -0.02
Liaoning
(0.04) (0.04) (0.026) (0.02)
0. 03 0.02 -0.06*** -0.06***
Zhejiang
(0.04) (0.04) (0.02) (0.02)
0.13*** 0.09** 0.03 0.002
Sichuan
(0.05) (0.05) (0.03) (0.024)
0.10*** 0.08** 0.006 -0.001
Hubei
(0.04) (0.04) (0.024) (0.021)
Observations 1415 1415 1415 1415
Note: Standard errors in parentheses

67
Table 16 (part 3 of report). Results of off-farm job search between May 2009 and August 2009
for the long-term laid-offs (those who lost off-farm jobs after September 2008 and did not find
new ones by April 2009) from August 2009 survey of CNRS respondents.
By August
Total sample size (total number of long-term laid-offs in our 124
sample)

Share of those with off-farm jobs (%) 30

By sex
Male 33
Female 25
By age group
<=30 years 43
30~50 years 24
>50 years 17
By education level
Elementary school or less 23
Middle school 32
High school or higher 45

Data source: Authors’ own data (CNRS dataset)

68
Table 17 (from part 4 of report). Unemployment Rates and Labor Force Participation Rates in
China

Unemploy- Labor Labor

Unemploy- ment Rate- Force Force
ment Rate Unemploy- Unemploy- Urban Participat- Participat-
All ment Rate ment Rate- Residents ion Rate ion Rate
(census) All (AS) All (GPZ) (GPZ) (census) (AS)
1996 3.9 4.5 6.8 73
1997 4.3 5.0 7.7 72
1998 6.3 5.6 8.5 71
1999 5.9 5.9 9.0 73
2000 8.1 7.6 6.5 10.8 69 66
2001 5.6 7.0 10.8 67
2002 6.1 7.3 11.1 66
2003 6.0 63
2004 5.8 64
2005 5.2 7.0 4.4 6.7 65 63
AS= from aggregate statistics based on labor force surveys; unemployment rate is the difference
between economically active population and employed workers, divided by the economically
active population, labor force participation rate is the economically active population divided by
the working age population (above age 16). GPZ=Giles, Park, and Zhang (2005), figures for
2005 are author’s calculations based on second wave of the China Urban Labor Survey.

[Extracted from: Park, Albert, Fang Cai and Yang Du. 2010. “Can China Meet Her
Employment Challenges? Chapter in Jean Oi, Scott Rozelle and Xueguang Zhou (eds.).
Growing Pains: Tensions and Opportunity in China's Transformation. Shorenstein
APARC Publisher, Stanford, CA.]

69
Table 18 (from part 4 of report). Urban Unemployment Rates and Labor Force Participation
Rates, 2000 and 2005

Unemployment Rate (%) Labor Force Participation Rate (%)

2000 2005 2000 2005
All 8.1 5.2 68.7 65.3
By sex:
Men 7.4 4.4 77.3 73.7
Women 9.1 6.1 60.0 57.1
By age:
16-24 15.8 9.5 91.9 85.1
25-34 7.1 5.3 88.7 86.3
35-44 7.5 4.6 88.1 85.9
45-54 5.1 3.8 71.0 69.3
55+ 1.6 1.9 21.1 23.1
By education:
<primary 2.1 1.4 26.8 29.7
Primary 4.0 2.6 60.4 58.1
Middle 9.6 5.7 78.9 74.3
High 10.9 7.6 83.4 74.8
Technical 4.4 4.1 90.5 84.8
college
Regular college 2.0 2.5 84.9 85.3
Graduate 1.1 1.3 92.1 95.6
By region:
East 7.4 4.8 70.1 67.3
Central 9.8 5.9 66.3 62.0
West 7.7 5.1 68.4 65.0
Source: 2000 census and 2005 mini-census data

[Extracted from: Park, Albert, Fang Cai and Yang Du. 2010. “Can China Meet Her
Employment Challenges? Chapter in Jean Oi, Scott Rozelle and Xueguang Zhou (eds.).
Growing Pains: Tensions and Opportunity in China's Transformation. Shorenstein
APARC Publisher, Stanford, CA.]

70
Table 19 (from part 4 of report). Labor Market Outcomes for Young Workers Aged 16-24, 2000
and 2005

Unemployment Rate (%) Labor Force Participation Rate (%)

2000 2005 2000 2005
All 15.8 9.5 91.9 85.1
By education:
<primary 7.7 3.3 52.5 41.1
Primary 10.4 5.9 87.4 80.0
Middle 14.6 7.7 91.7 85.3
High 20.4 13.0 92.8 84.5
Technical college 14.1 13.4 96.7 90.8
Regular college 6.3 11.9 96.3 90.1
Source: 2000 census and 2005 mini-census data

[Extracted from: Park, Albert, Fang Cai and Yang Du. 2010. “Can China Meet Her
Employment Challenges? Chapter in Jean Oi, Scott Rozelle and Xueguang Zhou (eds.).
Growing Pains: Tensions and Opportunity in China's Transformation. Shorenstein
APARC Publisher, Stanford, CA.]

71
Appendix Table 1 (part 2 of report). Descriptive statistics of the dependent and
independent variables used in regression analyses.
Std.
Variable Description and unit Mean
Dev.
R_out Rented-out: 0=no, 1=yes 0.13 0.33
R_in Rented-in: 0=no, 1=yes 0.16 0.37
Household head had off-farm job in 7
Head_OFt-7 0.31 0.46
years ago, 0=no, 1=yes
Number of other family members
Other_OFt-7 (excluding household head) had off- 0.29 0.58
farm job in 7 years ago.
Value of agricultural production
Ag_Equipment equipments nominated by own 8937 25845
cultivate land, yuan/ha.
Family labors Number of labor force in household 2.80 1.07
Own cultivate land Own cultivate land (not rented-in
0.42 0.51
land), hectare.
Wealth Per capita durable consumption assets,
16909 49462
yuan.
Note: the size of sample is 1672.

72
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 Endnotes

Endnotes for Part 1 of this report

1 Enumerators attempted to ask the employment histories from each individual themselves. If a household member
or one of the children of the household head was not present, the respondent (which was almost always the
household head or spouse of the household head) answered. Extensive pre-testing found that the data are fairly
accurate. In addition, we conducted a practical test to see whether or not a respondent bias problem exists in the
employment history part of our data. We replicated the analysis after excluding observations on individuals whom
we did not interview directly and found that the results did not change. This same method for collecting data has
been used by authors of deBrauw et al. (2002) in China; and Taylor et al. (2007) in Mexico. In fact, the authors in
these papers ask households for 20-year employment history and believe they have high quality data.

2 Table 3 and Figure 3 are created in order to allow us to compare the off-farm labor participation rates of
individuals belonging to different age categories during different years. For example, when comparing the
participation of 16 to 20 year olds in 2007 with those in 1995 in Table 3, we are actually looking at the participation
in 1995 of those individuals who are currently 28 to 32 years old.

3 In order to extrapolate the percentage of farm work done in each household by women back in time, we make
some assumptions about these fractions. First, we assume that men and women work equal numbers of hours if they
work full time on the farm. If they work part-time on the farm, we assume that they are equivalent to two-thirds of a
full time worker, regardless of their gender (which is the fraction that is worked by part-time workers in 2000).
Finally, men who work only in the busy season are assumed to be equivalent to one-third of a full-time worker,
whereas women who work only in the busy season are assumed to be equivalent to one-third of a full-time worker
(which is also based on the 2000 labor allocation data in the CNRS sample). We further assume that the fractions do
not change over time.

4 We only analyze the percentage of farm work done by women between 1990 and 2000, instead of over the whole
period (1980 to 2000), because some individuals who may have worked on these family farms during the 1980s may
have died. Since the share of respondents that were alive and for whom data were reported in 1990 is higher than
1980 (since there was more time for an individual to have died), this problem is not as substantial during the 1990s.

Endnotes for Part 2 of this report

5 There could be a concern that if ag_equipment is included as a control variable it may be endogenous. However,
our survey data show that purchases of most agricultural equipment were completed before the land transfer event.
For example, in our sample, on average, the typical land rental event occurred 4.4 years after the year in which
agricultural production equipment was purchased. In undertaking our regression analysis, we did the regression by
both including and excluding the ag_equipment variable. The results are almost the same for the parameters of all
other variables.

6 We were not able to run the Probit model with fixed effect estimation because the fixed effect estimation is not
available for the Probit model in STATA program that was used in this study.

Endnotes for Part 3 of this report

7 Enumerators attempted to ask the employment histories from each individual. If a household member or one of the
children of the household head was not present, the respondent (which was almost always the household head or
spouse of the household head) answered. Extensive pre-testing found that the data are fairly accurate. In addition,
we conducted a practical test to see whether or not a respondent bias problem exists in the employment history part
of our data. We replicated the analysis after excluding observations on individuals whom we did not interview
directly and found that the results did not change.

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In addition, we were worried about recall bias. Fortunately, we have data on the exact same households from an
earlier wave of the survey in 2000. Because of this we are able to compare the household’s estimate of labor market
participation in 2000 from the 2008 survey versus the information provided by the household from the 2000 survey).
With this unique set of data, we are able to judge if there was a recall bias. As it turns out, there is almost none.
Household participation in the off-farm labor market in 2000 was estimated to be 34.5 percent in 2008 CNRS
survey; the off-farm labor market in 2000 was estimated to be 35.4 percent when using the 2000 survey itself.

8 Whether the counterfactual method overestimates the quantitative impact of the global financial crisis largely
depends on how to isolate the shock of the global financial crisis from other domestic and exchange rate shocks. The
net impacts include mixed ones from domestic policy changes, exchange rate appreciation and the global financial
crisis. Our contention is that, in fact, it is of such overwhelming importance at the time of the study period that most
of the measured impact is due to the crisis.

9 In order to test the performance of the trend analysis, we used the model without using the observation for 2007 to
see how accurate it predicted what actually happened in 2007, the last year before the crisis. The actually level of
off-farm employment in 2007 was 57%. The predicted level of off-farm employment was 55%, a difference of only
2%.

10 Rural labor force in this paper is defined as the follow: all people with ages between 16 and 65 except for those in
schooling, military and prison, those who do not participate in farming or non-farm works due to health
consideration (e.g., too old and ill), and those who only do household work at own home. On the other word, the
labor force is defined as all people with ages between 16 and 65 and they work in either farming or non-farming or
still seek for job.

11 When comparing annual off-farm employment rates and off-farm employment rates (using monthly data) for
only part of the year, the annual off-farm employment rates will be higher. The reason is simple: Consider a two
person economy. If one person worked off-farm during the first half of 2008, but not during the second half of the
year; and if the other person worked off-farm during the last three months of 2008 but not before that, the monthly
off-farm job rate would be 50% during the first 6 months (January to June), zero during the third quarter (July to
September) and 50% during the last quarter (October to December). On an annual basis, however, the off-farm
employment rate would be 100%.

12 In our analysis, net impact is equal to: BAU off-farm employment minus Actual off-farm employment. It is
important to note that Actual off-farm employment in April 2009 consists of two parts: One, the workers who were
working in September 2008 and who were still working in April 2009; and two, newcomers, or workers who were
not working in September 2008, but who were working in April 2009. This number is different than the number of
workers who were laid off.

13 So what is the total number of off-farm workers laid off? In fact, the number of rural workers laid off after the
financial crisis (between October 2008 and April 2009) is 49 million. This is composed of two parts. The first part is
the 25 million long-term laid-offs. This is the number of workers that were working off-farm in October 2009, but
not working off-farm in April 2009. There is also another group of workers, the re-hires, which numbers
coincidentally at 24 million. This is the number of workers that lost their job after September 2008 and were rehired
at some point between October 2008 and April 2009. Later in the paper, we analyze who these workers are and what
characteristics (gender, age, education) affect their off-farm employment status. This issue is analyzed in more depth
below.

14 Because the workers over whom this comparison is being drawn differ for 2008 and 2009, it is possible that this
assumption is not accurate. However, in interviews with a subset of workers from our sample that we did over the
phone, most workers said their hours remained unchanged. For those that said their hours changed, as many workers
(who worked in both 2008 and 2009) said their hours went up as said they went down.

81