Accounting For Labor Input in the Chinese Industry 1949-2005

1. Paper by: Harry X. Wu and Ximing Yue Presentation by: Ghassan Baliki and Kieu Minh Hanh Accounting For Labor Input in the Chinese Industry 1949-2005

2. Outline • Introduction: • Historical Overview of the Chinese Economy • Measurement of labor Input in Chinese Industry • Literature Review • Labor Input Indexing • Construction of the Basic Data For Marginal Matrices and the Full-Dimension Employment: • Problems in data acquisition and classification • Proposed refinement measures • Results and Discussion • Conclusion

3. IntroductionHistorical Overview of the Chinese Economy • Maoism and the socialist experiment (1949) • Collectivization of industry and agriculture (1951) • The great leap forward (1959) • The Cultural Revolution • Post-Maoism and the economic transition (1976) • De-collectivization of agriculture • Liberalization and Privatization (1990s) • Industrialization

4. IntroductionMeasurement of labor Input in Chinese Industry 1) Numbers employed as a proxy for labor input (homogeneity) • Inconsistency due to changes in institutional working hours • Ambiguity of the TPF due to labor quality changes 2) Heterogeneity of labor input Aim: “Solve one of the key measurement problems for Chinese industry, that is, the problem of measuring labor input that can be decomposed to quantity and quality”

5. Literature Review Hu and Khan,(1997). Why is China Growing so Fast? IMF Staff Papers, 44(1):103- - Labor Input estimated as the total number of employed persons - Total wage compensation was calculated as the sum of total wage bill and total labor insurance and welfare payments - But excluded implicit housing subsidies as in Li(1993) - Labor share in Total productivity around 40%

6. Literature Review Hsieh and Klenow (2009). Misallocation and Manufacturing TFP in China and India. Quarterly J Econ, 124(4):1403- - Plant’s industry, age, reported birth year, ownership, wage payments, value-added, export revenues, and capital stock. - As for labor compensation, the Chinese data does not provide information on nonwage compensation. - The median labor share in plant-level data is roughly 30% (which is significantly lower than the aggregate labor share in manufacturing reported in the Chinese input-output tables and the national accounts (roughly 50%)) - assume that nonwage benefits are a constant fraction of a plant’s wage compensation, where the adjustment factor is calculated such that the sum of imputed benefits and wages across all plants equals 50% of aggregate value-added.

7. Labor Input Indexing • Heterogeneity of Labor. i.e. different types of workers have different marginal products in a defined period • Production function with K and L: where First Differences: where

8. Labor Input Indexing Continued... Now the quality and where Quality Growth:

9. Quantitative Problems in Chinese Labor Statistics 1) Cannot reflect significant changes in China’s labor employment system as the consequences of policy or institutional changes while maintaining historical consistency. 2) data on prices and wage rates are scant due to the absence of the allocation of labor as in market systems 3) Inconsistency in industrial classification (the use of different standards over time without proper adjustment) and the availability of discrete rather than continuous data which hinders the implementation of a time-series analysis 4) the inclusion of service employment under industrial labor data in centrally planned systems 5) the quantity of employment is not measured in working hours

10. Qualitative Problems in Chinese Labor Statistics • The proper measure of the quality change of labor input is the difference between the user-cost-weighted index of labor input and the unweighted or hours worked index. • This should account for the demographic, educational, and occupational attributes, to form the occupational matrix. As well as the exact elements for the compensation matrix. (Which do not exist in Chinese Statistics)

11. Refinement and Construction • Given the above-mentioned problems. • How can we construct compatible labor employment and compensation matrices • Tasks: 1) Clarification of official concepts of industrial employment 2) Reconciliation of official data with different classification 3) Adjustment of coverage problem • Employment Matrix Construction: • State vs. non-state firms • “Staff and workers” vs. “social Laborers” • Dept of Industrial and Transportation Stat (DITS) vs. Dept of Population and Employment Stat (DPES)

13. Clarification of Official Concepts of Industrial Employment The aim is to construct a dataset with three different layers: 1) State of Employment as the “Hard Core” 2) Non-state Employment as the “Township Layer” 3) All Others as the “Outer Layer”

14. Reconciliation of Official Data with Different Classification Due to the loss and non-availability of sectoral industrial data in the National annual bulletin 1) Exhaustion of the available data (arithmetic), in case of sectoral breakdown 2) reliance of on mid-point interpolation through intra-industry weights, in case of no sectoral breakdown

15. Filling in the Gaps 1) In “hard core”: 1949-1951 and 1993-1994 Through averages assuming the periods are too short of the occurrence of significant structural change 2) In “township layer”: 1949-1980 Through the extension of data available by benchmark years 3) In “outer layer”: Through arithmetic means and sectoral benchmarks of available years

16. Adjustment of Coverage Problem The need for occupational data cross-classified by ownership in order to remove non-industrial laborers included in the Chinese industrial statistics: - Few Benchmarks will suffice (structural adjustment based on technology): no short-term effect - Only in state-owned enterprises - The use of interpolation

17. Converting to Hours Worked State Industries follow the official standard of working hours, while non-state and self-employed adjust them to current demand and supply conditions Then how to account for that? - by separate analysis of state and non-state firms - for state industries: subtract holidays accordingly, 9 hours per day prior to 1954 (avg), and 8 hours per day post 1954 - Shift system for the continuation of production is certain industries. (steel , chemical, power generation, etc). Decrease of working hours to 6

18. Converting to Hours Worked - for non-state industries: treat as official working hours prior to the reform period, and for the post-reform period: • Add the weekly working hours by 4 to 52 from 1985-92 (due to demand for production) • Add the weekly hours by 4 again to 56 from 1993-2005 (due to Trade and FDI) - for the self-employed: • Seasonal adaption for the post-reform period

19. Compensation Matrices Problems with compensation data: - “total wage bill” do not cover “staff and workers” - “total insurance and welfare employment” lack industry breakdowns Input-output surveys by the Department of National Accounts are intended to fill in the gaps. Used as benchmark Task: 1) reclassification of data to ensure consistency with CSIC 2) perform interpolations between the benchmarks 3) calculate the differences between estimates and that of input-output 4) assuming relative compensation among “ownership” held (Since the output-input data does not cover that)

26. Annual growth of labor input in the Chinese industry experienced a decline from 7.9% in the pre-reform period to 1.9% in the post-reform period Quality improvement accounted for 15 percent in the pre-reform period , but it made a negative contribution during the post-reform period. changes in education and age of the industrial workforce made a larger impact in the reform period than under central planning Negative impact of changes in gender, industrial structure and ownership type along with the market oriented reform Conclusion