Labor Misallocation, Structural Transformation And Their Effects On Skill-biased Technical Change

Thirty years since the reform and opening up policy, China’s continued economic reform hasmade great achievements, but there are universal phenomenons of factor misallocation andineffective factor allocation based on the imperfect market, the barriers of factor mobility hashindered the optimization of the macroeconomic structure and the sustainable growth ofmacroeconomic. The optimization of labor structure in China with a large population is critical forsustainable economic development. The higher the level of labor misallocation is, the larger theeconomic efficiency loss is, which means the lager the effect of labor allocation on economicgrowth is. We need to improve the factor allocation efficiency and focus on the effect of factormobility on technical change. Based on this, the paper studies the change of China’s labormisallocation, labor structure and their effects on skill-biased technical change, the main studiesare as follows:Firstly, the paper raises the research background, significance, methods, innovations andframeworks, reviews the relevant literature on labor misallocation, skill-biased technical changeand the effect of labor structure on skill-biased technical change, and summarizes thecharacteristics and limitations of the studies. Then builds a theoretical model based on thenon-labor-misallocation market and studies the effect of labor structure on skill-biased technicalchange, results show that the direction and level of skill-biased technical change depend on theelasticity of substitution of labor and the labor structure. When skilled labor and unskilled laborare gross complements, if the relative supply of skilled labor and unskilled labor increases fasteror decreases more slowly, the skill-biased technical change index will increase, the skill-biasedlevel will rise or the unskill-biased level will decline, otherwise the opposite. When the twofactors are gross substitutes, the conclusion is opposite.Secondly, it builds theoretical a model based on the labor-misallocation market, studies theeffects of labor misallocation and labor structure on skill-biased technical change, and analyzesthe differences and similarities between the non-labor-misallocation model and thelabor-misallocation model comparatively. The results show that the direction and level ofskill-biased technical change depend on the elasticity of substitution between labor, the labormisallocation and the labor structure. When the level of labor misallocation decreases faster orincreases more slowly, the skill-biased technical change index will decrease, the skill-biased levelwill decline or the unskill-biased level will rise, otherwise the opposite. When skilled labor andunskilled labor are gross complements, if the relative supply of skilled labor and unskilled labor increases faster or decreases more slowly, the skill-biased technical change index will increase,the skill-biased level will rise or the unskill-biased level will decline, otherwise the opposite.When the two factors are gross substitutes, the conclusion is opposite. It is observed thatnon-labor-misallocation model neglects the effect of labor misallocation on skill-biased technicalchange, when the level of labor misallocation is decreasing, the model overestimates theskill-biased technical change index, otherwise the model underestimates the index.Thirdly, it builds labor misallocation index to investigate the labor misallocation level ofChina, seven regions and provinces, and builds econometric models to analyze the factors whichinfluencing China’s labor misallocation level. The empirical results show that during the sampleperiod China’s labor misallocation level has been improved at a high speed. During the sampleperiod the labor misallocation level of north China, east China, central China, south China andsouthwest China have also been improved, but the change of labor misallocation level of northeastChina and northwest China are complex. The labor misallocation level of provinces aresignificantly different, most provinces have improved their labor misallocation level, the labormisallocation level of developed provinces are relatively low and the labor misallocation level ofless developed provinces are relatively high. The econometric results of the factors whichinfluencing labor misallocation level show that the change of China’s labor misallocation leveldepends on the change of marketization level and tax policy. The paper builds labor structureindex to investigate the labor structure change of China, seven regions and provinces, and buildseconometric models to analyze the factors which influencing China’s labor structure. Theempirical results show that during the sample period China’s labor structure has been optimizedwith years, but the imbalanced situation between skilled labor and unskilled labor is alwaysobvious. Similar to the data of China the labor structure of every region has been optimized withyears. The labor structure of provinces are significantly different, but every province hasoptimized its labor structure, and the optimization level of developed provinces’ labor structuregenerally exceeds the optimization level of less developed provinces’ labor structure. Theeconometric results of the factors which influencing labor structure show that China’s laborstructure change depends on the change of labor misallocation level, industrial structure andper-capita education spending, an decrease in the labor misallocation level will raise the relativesupply of skilled labor and unskilled labor, otherwise the opposite.Finally, the paper estimates double nested CES production function of China, seven regionsand provinces based on the normalized system, and measures the skill-biased technical changeindex according to the estimation results. It is found that China’s technical change is skill-biased,but the biased level declines with years. There are obvious differences among the level ofskill-biased technical change of regions, but the level of skill-biased technical change of regions are changing with converge. The technical change of north China, east China and south China areskill-biased, but the biased level decline, the technical change of central China is skill-biased, andthe biased level rises, which means the technical change of north China, east China, south Chinaand central China are more conducive to raise the marginal product of skilled labor. Theskill-biased technical change in northeast China, northeast China and southwest China display anunsteady state. The results of provinces show that there are obvious differences among thevariation trend of skill-biased technical change of provinces, but most skill-biased technicalchange index of developed provinces display a declining trend year by year, while mostskill-biased technical change index of less developed provinces display a rising trend year by year.And the paper builds econometric models to verify the effects of labor misallocation and laborstructure on skill-biased technical change, the results show that when China’s labor misallocationlevel decreases faster or increases more slowly, the skill-biased technical change index willdecrease, the skill-biased level will decline or the unskill-biased level will rise, otherwise theopposite, which is consistent with the theoretical results. The results of effect of labor structureshow that when China’s relative supply of skilled labor and unskilled labor increases faster ordecreases more slowly, the skill-biased technical change index will decrease, the skill-biased levelwill decline or the unskill-biased level will rise, otherwise the opposite, which is also consistentwith the theoretical results.