Study On The Influence Of The Rising Labor Cost On China’s Agricultural Production

There has been a heated discussion of whether China’s economy has reached the ―Lewis Turning Point" since the "shortage of migrant workers" took place in 2004 for the first time.Although the discussion has not been settled, the rising labor cost is an indisputable fact.Coupled with the rigidity and viscousness of rising wages, the rising labor cost could be a long-term trend which is irreversible.That is to say, the factor endowment structure and their relative prices our agricultural production is facing are undergoing a major change: the labor cost is being pushed to a higher level by different factors. This is not only an objective reflection of characteristics and stage of development of the agricultural resources endowment, but also new constraints agricultural development in our country faces.So, what substantial impact will rising labor costs bring to agricultural production? What response will agriculture itself make and how will it cope with this challenge through its transformation? What policy implications will it provide? Especially, can the rising labour cost keep pace with and be adaptive to the improvement of agricultural labor productivity? Will the advantage of labor cost of agricultural production be weakened? In the case of the rapidly rising labor costs, have the Yu Jiro Hayami-Ruttan type factor substitution and induced technological progress occurred in China’s agricultural production? Will there be regional and industrial differences in the process?Will the farmers be more inclined to adopt labour-saving technology? What role will the family endowment characteristics of a farmer play? Although these questions have been partly covered in some existing literature, a comprehensive and systematic research and clear and consistent answers are still in need.In view of this, both theoretical and empirical analyses of the impact of the rising labor cost on agricultural production are made in this paper from the aspect of induced technological innovation. The following is how this paper is arranged. Chapter one is a brief introduction to the background, purpose and significance of the research. The contents, research methods and possible innovation are also included in this part. Chapter two reviews and summarizes both domestic and foreign relevant theory and literature systematically, providing a theoretical framework for the entire study. Chapter three introduces the concept of unit output labor cost, combining the labor cost and labor productivity. The analysis of the temporal evolution characteristics, regional differences and industry comparison in order to test whether the rising labor cost has weakened the advantages of labor cost in agricultural production is also covered in this part. Chapter four brings labor cost into the translogarithmic cost function and then examines the influence of the rising labor cost on the demand for agricultural production factors and factor substitution through the estimation of the shadow substitution elasticity. Chapter five and six analyze the influence of the rising labor cost on the structure of agricultural production inputs in both the macro provincial level and the medium industry level respectively. Meanwhile, in order to test whether the Yu Jiro Hayami-Ruttan factor substitution and induced technological progress has occurred in agriculture, the two-dimensional spatial phase diagram is used in the description of agricultural growth path and technological progress deviation behind the structural change of factor inputs. Then, farmers’ willingness to adopt labor-saving technology and its influence factors are taken into consideration using the peasant household survey data of labor cost in chapter seven. Finally, chapter eight generalizes the whole paper and puts forward the corresponding policy advice.The main research contents and conclusions of the paper are as follows:Research Content One: the temporal evolution, regional differences and industry comparison of unit labor cost in agricultureThe goal of this part was to accurately measure the relationship between the labor cost and the agricultural labor productivity, and test whether the rising labor cost has weakened the advantage of labor cost in agricultural production from temporal evolution, regional differences and industry comparison.The results show that:(1) In view of the temporal evolution: since the "shortage of migrant workers" in 2004, the rising labor cost had reduced the advantage of labor cost in China’s agricultural production in terms of microcosmic effective labor input, yet had not weakened the advantage of the macro labor cost per capita. Such a difference precisely displayed the existence of disguised unemployment and insufficient employment in rural area.(2) In terms of three major areas, that is the eastern, the central and the western region, regional differences were remarkable in different stages and displayed a dynamic change. Advantage of labor cost in agricultural production in the western region, however, had been the most prominent since 1997, followed by the central and the eastern regions.(3) From the perspective of industry comparison: the land-intensive crops had the advantage of labor cost over labor-intensive crops when the agricultural industry was seen as a whole. What’s more, the rising labor cost had exerted significant influence on labor-intensive crops, which needed large inputs of labor, suffered from low degree of mechanization and low added market value.Research Content Two: the impact of the rising labor cost on the demand for agricultural production factors and factor substitutionThis part aimed to examine whether the rising labor cost would lead to a decrease in farmers’ labor input and the change of relative prices caused by the rising labor cost would induce substitution of factors. The study found that:(1) the factor demand of grain production was in a rational price adjustment range, and factor price was still the economic leverage adjusting factor needs;(2) there was an obvious substitution relation between agricultural machinery and labor, which means with the rapidly rising labor costs, using machinery to replace labor can significantly reduce agricultural labor input and effectively alleviate the constructive shortage of labor force caused by the selective transfer of labor force;(3) the substitution relation also existed in between fertilizer and labor. As economic incentive is the primary consideration in policy-making of peasant households, to choose more-amount-and-less-times fertilizing style and to increase chemical fertilizer application while reducing the farmyard manure input, thus replacing labor with fertilizer, should be a rational choice of the farmers’ in the consideration of rapidly rising labor costsResearch Content Three: the impact of the rising labor cost on agricultural growth path on industry level.Based on the data of agricultural industry from 1978 to 2012, this part tested whether the rising labor cost would result in labor-saving technological(machinery technology for example) progress. In such a process, would the technological revolution type and the selection of growth path be identical among different agricultural industries(land-oriented and labor-oriented for example) in spite of their structural differences in the land and labor ratio? If not, what differences would be made? The main conclusions are as follows:(1) Induced bias is an obvious feature of China’s agricultural technological change. That means along with the change of factor endowment, especially the rising of labor cost, China’s agricultural production presents an obvious tendency of labor saving and capital deepening.(2) China’s agricultural growth path may be experiencing a historic transformation: it is on the road of breaking through the traditional ―involution trap‖, changing from land productivity orientation to labor productivity orientation.(3) The agricultural technological change and growth path of agriculture differ among agricultural industries. Therefore, we should have the foresight to design the corresponding system and policies to further develop agriculture under the labor productivity oriented growth path, thus grasping the historic opportunity for the development of agricultureResearch Content Four: the willingness of farmer households to adopt labor-saving technology and its influence factorsThis part intended to find out whether farmers would be more inclined to the adoption of labor-saving technology against the background of the rapidly rising labor cost by using the micro survey data of farmer households. Would they be more willing to buy machines for agricultural production or agricultural machinery service? And how did their family endowment features and psychological mechanism affect their adoption willingness. The results showed that:(1) Farmers’ willingness to learn and adopt labor-saving technology was higher, but the vast majority of them tended to purchase agricultural machinery service directly, rather than to purchase agricultural machinery. Therefore, agricultural machinery socialization service system should be improved.(2) Family endowment including human capital, social capital, material capital and natural capital are the key factors affecting the learning and adoption of labor-saving technology by farmers. Among them, the influence of family human capital endowment was the most profound, which suggested that the human capital investment should be farmer’s top priority.(3) In the study of peasant households’ adoption willingness of labor-saving technology, it is reasonable and applicable to construct a structural equation model from the aspect of psychological mechanism based on technology acceptance model. Perceived usefulness(PU), perceived ease of use(PEOU), social influence and adoption condition are the key factors influencing peasant households’ adoption willingness of labor-saving technology.In this paper, the possible innovation mainly embodied in three aspects:Firstly, Existing researches mainly focused on agricultural labor force transfer, changes in population structure(such as aging, feminine, etc.) and their influence on agricultural production. In fact, all these factors would inevitably boil down to the rising labor cost. However, papers paying attention to the influence of rising labor cost on agricultural production from the perspective of costs and production have not yet been found. Therefore, the respond of agriculture itself to the change of labor cost, such as the agricultural technology progress deviation, changes in growth path and validation of induced technological innovation theory, has been the starting point of this paper.Secondly, On the one hand, the application domain of some existing research methods has been expanded in this paper. In previous literature, two-dimensional spatial growth phase diagram was mainly used in the international comparative study of agricultural development. Yet this paper applied it in the comparative study of the agricultural growth path and technological progress deviation on provincial and agricultural industrial level. This is the expansion of its application domain. On the other hand, the choice of methods analyzing the influence of the labor cost rising on demand for agricultural production factors and their substitution in chapter four had been something new. In the existing research literature, production function was mostly used in the depiction of factors substitution relations. The changes of factor prices were seen as exogenous variables. This paper considered the change of labor cost as endogenous variable by using the method of substitution elasticity estimation based on the translog cost function, which not only made up for the deficiency of the present researches, but also could effectively depict the farmer’s production and management decision-making in the situation of the rising labor cost. This also made up for the lack of attention on micro level in the agricultural induced technological innovation theory.Thirdly, Compared with the previous research, this paper drew some new conclusions from the research of the influence of the rising labor cost on agricultural production. In view of the endowment characteristics of China-―large population with small arable land‖, scholars have reached two basic cognition of the development direction and characteristics of China’s agricultural production. One is that the modernization of China’s agriculture should rely on biochemical technology and take the path of "land-saving" rather than "mechanical modernization" from the aspect of induced technological innovation. The other is that the small-scale peasant economy in China has a tradition of intensive cultivation featured by "over-concentration" and "involution". However, this paper found that China’s agricultural production presented an obvious tendency of labor saving and capital deepening with the rise of labor cost. Agricultural growth path may be experiencing a historic transformation: it is on the road of breaking through the traditional ―involution trap‖, changing from land productivity orientation to labor productivity orientation. This helps to deepen the understanding of the induced technological innovation theory and the small-scale peasant economy in China, thus making a little contribution to the theoretical research in this field and providing an empirical reference for future research.