Labor Market Segmentation In China: Towards An Analysis

China's labor market is experiencing a series of conflict and disorder in the process of its economic transformation. The problems, such as unemployment, widening income gaps and shortages of human capital accumulation, are restricting the further development of China's economy. This thesis discusses these problems under the framework of Labor Market Segmentation (LMS) theories. The thesis focuses on the extent of LMS in China and its impacts on human capital investment and employment.The reasons for LMS in China are different from that found in the developed economies. The extent of segmentation in China is also far more significant than that of those countries. For the developed countries, LMS has something to do with the characteristics of the commodity markets. But in China, LMS is induced by a series of institutional arrangements, most notably the residential registration system and the planned labor deployment system. In the process of economic reform, the labor-intensive industry and the instability of the commodity market are producing a huge secondary labor market. This has led to the sharpening difference between the primary and the secondary labor market.In China, the serious segmentation of the labor market is weakening the incentives for human capital investment. The majority of workers in the secondary labor market are the surplus rural labor and the urban laid-off workers. The return of human capital is very low in this segment of the labor market and there is little incentive for the employees to improve their quality. In addition, there is often little opportunity for employees in the secondary labor market to enter the primary market, which make them lose out on the opportunities of accumulate human capital through learning-by-doing in the primary market. Further more, the shortage of their human capital in turn poses more obstacles for them toenter primary market.LMS reduces the mobility of labor between different industries, occupations and regions. However, the industry structure and product structure are constantly changing. In the event that the economic structure transformed so rapidly that the labor flow cannot adapt to this change, the economic system will produce a great volume of structural unemployment. In the most probability, China' s unemployment problems of the last two decades are caused by the multi-layers of segmentation between the rural-urban divide, sectoral segmentation and dual market segmentation.Repairing the market mechanism, reforming the out-of-date institutional system, freeing the rural-urban migrant channel, and then establishing a unified and flexible labor market, are the major premises and key factors to solve all the problems in China' s labor market mentioned above.