The Impact Of Labor Reallocation Effect On China's Economic Growth And Regional Disparity

Since the end of 1970's,China has been maintaining its sustained and rapid economic growth.Based on the data provided by China Statistical Yearbook(1978-2007),the average annual growth rate of China's GDP is more than 9%,and the average annual growth rate of GDP per capita is more than 8%,which made China one of the world's fastest growing economies over the same period. Sustained and rapid economic growth and development attracted many scholars'interest of doing research in the field of China's economic growth.As for economic growth, Neo-classical school views that there is a long-term effective allocation of economic resource.Labor and capital in different sectors obtain the same marginal revenue. The inter-sectoral transfer of capital and labor can not increase the total output, and the re-allocation of resources only occurres in the period of economic expansion. Thus, Neo-classical growth school attributed economic growth to the accumulation of capital, labor input and exogeneous technological progress.On the contrary the theory of Structurism views that economic growth is inequilibrium,and there is no a long-term optimal allocation of resources.Resources in different sectors have different productivity, labor and capital's flow and transformation between different sectors will undoubtedly improve the overall level of productivity, thereby promote economic growth.Therefore, the structure school of economic growth views that,in addition to neo-classical theory of economic growth rebealed by the above-mentoned drivers,but also should include the re-allocation of resoures, which means that economic growth brought by the transfer of resources from low productibity sector to high one.Return to China's economic growth, most of the research attributed China's rapid growth to capital-driven factors such as high investment, or technological progress, or performance by the reform of economic system. Some scholars have also expressed concern that the resources re-allocation between sectors (ie, structural changes) on the impact of China's economic growth, such as Hu Yongtai(1998), Cai Fang, Wang Dewen (1999), Fan Shenggen et al (2002).They used different methods to analyse of the contribution of labor inter-sector transfer to China's economic growth since the reform.However, these research has not considered that as a large developing country, there are still regional disparity of economic development within China. Many studies such as Lin,liu(2003) has proved that the inter-regional gap of economy has widened since the reform. Economic theory shows, the result of competition within regions is that the more efficient regions could access to the more resources, and then achieve the more rapid growth of total output. Since reform and opening up, especially since the late 80's in the last century, with the household registration system impeding the labor mobility, and relevant policies of labor market segmentation was relaxing, inter-regional labor mobility especially the mobility from central and western regions to eastern coastal areas is also expanding, which leads to more expanded regional gap of the total economic output and its growth rate. However, such as the inter-sector reallocation of resources, it will promote the overall economic growth because resources transfering from low productivity areas to high productivity areas. So when we analyse China's rapid and sustained growth, we have to not only consider the role of element accumulation and technological progress, but also consider the role of the element reallocation.The element reallocation not only means the re-configuration within different industrial sectors, but also means inter-regional element flows, which will strengthen the impact of the traditional structural changes (ie, inter-sectoral re-allocation of elements) on economic growth. This is a supplement of explaintion to China's sustained and rapid economic growth, at the same time, it can better explain the reality of widening gap in different regions.This paper studies the effect of labor reallocation in China's high-speed economic growth since reform and opening-up, and analyse the resource reallocation from a macro point of view according to researching labor productivity growth, the changes and differences of output structure and employment structure in different areas and departments. And this study majors in the growth effect and convergence effect of labor reallocation. One of the research goal is measuring the growth effect of labor reallocation of the total country, and it break through the traditional inter-sectoral reallocation of labor, but also includes the inter-regional reallocation of labor. The other goal is to research the convergence effect of labor reallocation, mainly on studying the convergence effect of labor productivity in different provinces, testing the imbalance of labor reallocation effect in different regions and its impact on regional disparity. According to the first research, we discover that China's economic growth was mainly due to a substantial increase in labor productivity. According to decomposition of the country's total labor productivity growth rate, we find that labor reallocation could indeed bring to the improvement of productivity, and then promote the growth of output.Just consider the inter-regional labor reallocation of different provinces, we can get the lowest limit of contributions that labor flows impact on economic growth. Among them the inter-sectoral labor mobility explained 14.3% of China's economic growth rate in 1978-2000, and the inter-regional labor mobility explained 2.7%. So the tatal effect of labor reallocation contributes 17% of China's economic growth. It is worthy noting that the effect of internal industry restructuring and labor reallocation has not been considered, which may ever higher than the effect of inter-sectoral labor mobility on economic growth.In addition, considering that labor flows in different areas in the same province and the unfilled employment, we recalculate the highest limit of the total labor reallocation effect (including the inter-regional and inter-sectoral labor mobility), and we get the estimated range of labor reallocation effect is about from 17% to 39%. It shows that the inter-regional labor mobility indeed play a complementary role of the inter-sectoral labor mobility. There is a "big country effect" in China's economic growth since the market-oriented reform, which means that in China's high-speed growth history, the labor productivity growth is not only brought by labor transfer from agriculture to production industry and service industry, but also brought by labor flows among different areas.When the total economy kept a high-speed growth, the regional disparity shows a trend of expanded. According to analyse regional disparity trend and decomposition of the per-labor output (ie. labor productivity), we prove that during the thirty years of China's reform and opening-up, the regional disparity of labor productivity firstly reduce for a short term, then continuously expanded for many years, and it became reduce again in recent years, but the extent of regional disparity is still far higher than the initial stage of reform and opening-up. The composition of regional disparity is mainly on the disparity among eastern areas, north-eastern areas, and central western areas. The internal disparity in eastern areas is the main component of regional disparity at the beginning of reform and opening-up, but with the rapid economic growth of eastern coastal provinces, the internal disparity in eastern areas became narrow, the gap between eastern areas and central western areas was expanded and became a dominant factor.Since most research literature of China's regional disparity are mostly affected by neo-classical single-sector growth model, they neglect the effect of structural changes. Labor productivity growth could be decomposed into internal industry growth and inter-sectoral labor reallocation effect. Among them, labor reallocation effect reflects the role of structural changes, so the internal industry growth is much closer to the per-labor output (ie. labor productivity) in Solow growth model theoretically. So when we verify that there are significant differences in industry structure in different areas, and the labor productivity of different industry in diffenent areas is not the same, we can conclude that the structral changes is an improtant factor in regional disparity.The idea of the second research goal is as follows. First, this article decompose different provincial affected factors of total labor productivity in each stages, then make regression of total labor productivity in different provinces and stages on labor productivity in corresponding initial years, and verify the absolute convergence establish or not. Then make another regression of labor reallocation effect (figured by structural characterization) on labor productivity in corresponding initial years, and measure the labor reallocation effect on the impact of regional disparity. Finally, make regression of internal productivity growth on labor productivity in initial corresponding years, to verify absolute convergence effect.Through the second research we find that there is no absolute convergence in labor productivity in various regions since reform and opening-up. But when we study it in different stages, we can see that:in first stage (1978-1984) of rural reform period, there is significant trend of convergence, but in the second stage (1985-2001), the regional disparity shows significant trend of disvergence, and the third stage did not diverge signifcantly. According these regressions, we find the labor reallocation effect is a significant factor that leads to regional disparity being narrow in the total thirty years. In view of different stages, the labor reallocation effect has expanded the regional disparity in 1978-1984, but not significantly. In the later two stages, convergence effect of the labor reallocation is significant. Especially since 2002, it has directly resulted in narrower regional disparity. The disparity of internal industry labor procuctivity which is cause by technogical progress and capital deepening is the main reason for the widening regional disparity. In view of different stages, the regional disparity became narrow in 1978-1984, dued to the narrow differences of internal industry labor productivity. Because in lower labor productivity areas, the share of agriculture is higher, so the labor productivity growth in agriculture department brought by rural reform has a bigger contribution to the total labor productivity growth. In 1985-2001, disparity in inter-industry labor productivity is a significant reason for widening regional disparity, but this effect has been narrow since 2002.