The Study On Capital Deepening In Manufacturing Sector And Its Employment Effect

Since the1990s’, China’s manufacturing sector appeared an abnormally high investment enthusiasm and heavy-industrial structure movement, making the economy entering a development model which relies on investment-driven. However, when the growth of investment can not drive more labor input into the production process, it will result in capital-labor ratio increased, which appeared the phenomenon of capital deepening. It is confirmed by many scholars which Chinese industrial has been experiencing a capital deepening trend. As for a country that has such a large number of surplus labor and in the process of industrialization, this routine of economic growth is contrary to China’s factor endowment. Technical options to keep the substitution of capital for labor path deviation will increase the difficulty of solving the employment. Especially in the current context of economic slowdown, employment problems are more important and more sensitive.Where to go of China’s industrialization? Is it reasonable for the’Heavy Industrialized Trend’which is bought by the huge amount of capital and resources input? It can be said that this question is related to the road of industrialization and economic development mode, and also related to the employment problem solving and the harmonious society achieving. In fact, it is closely related of the process of industrialization, capital deepening, labor force and technological progress, so how to understand the process of industrialization of China’s current capital deepening phenomenon? Are they related of technological progress and capital deepening? Is manufacturing sector’s capital accumulation causing the difficulties in the labor employment? What cause the current economic predicament? This article will make a tentative exploration of the above questions by detailed theoretical and empirical analysis.Based on the above background, the main contents of this paper are as follows: Chapter1is the introduction. This section is intended to bring forward the questions, clarify the significance of research, and determine the content of this study in order to define the research ideas, research methods, research questions. Chapter2is the literature review and comments. As for the understanding of the capital deepening, it is can be dated back to the Marx’s theory of organic composition of capital. Based on this, this chapter will clarify the origin and meaning of the capital deepening, summarize the reason and the economic effects of it, and analyze the relationship between capital deepening and technological progress. In making a brief review of the existing literature, it clarifies the starting point of this article. Chapter3is the theoretical analysis of this paper. In this section, it analyzes the reason of the capital deepening and the relationship between capital deepening, employment and technical progress. Chapter4is the research basis of this article, which estimates the manufacturing sector’s capital stock and capital deepening levels. This chapter uses the perpetual inventory method to estimate the capital stock of the manufacturing sector, and calculates the capital deepening level of different regions, therefore it is clarifies the regional characteristics of capital deepening. Based on this, this chapter furthers to analyze the institutional reason of these differences. Chapter5analyzes the employment effect of the manufacturing sector’s capital deepening and the differences between regions. Based on the analysis of the output and employment of the manufacturing sector, this chapter summarizes the influence of capital deepening to the labor employment. Learned from the theoretical model of Costas&Christopher (2007), making the manufacturing technology progress as a function of the capital stock, this chapter builds a theoretical model for exploring the mechanism of the impact of capital deepening to labor force and makes an empirical test. From the aspect of biased technical progress, Chapter6analyzes the reason why there are differences between regions of the capital deepening’s employment effect of the manufacturing sector. Based on the theoretical framework of neoclassical economics and the CES production function, this chapter deduces the method to estimate the direction of technological progress. Using simultaneous equations, this chapter measures the Chinese manufacturing sector’s different orientation and degree of the bias between regions during the period1993-2011. Chapter7is the conclusion of the full article. This chapter summarizes the conclusions of this study and puts forward the corresponding countermeasures, meanwhile, makes a further prospects and planning of the future research directions.This article uses the combined research methodology of theoretical analysis and empirical, quantitative analysis and qualitative analysis. More specifically, the article adopts the literature analysis, comparative analysis, statistical analysis and quantitative analysis method to analyze the phenomenon of manufacturing sector’s capital deepening and its employment effects during the industrialization. The main conclusions obtained in this study are as follows:Firstly, this article estimates the capital stock and capital deepening level of manufacturing sector of the28provinces from1993to2011using the perpetual inventory method. The result shows that The Northeast has the highest index no matter from capital deepening or from deepening growth rate as a traditional heavy industrialization base. The Middle and West has a faster capital deepening development even though the capital-labor ratio is less than the eastern region. The reason is that in the context of the "Chinese-style separation of powers", local governments face the "zero-sum game", which is a "non-progress, or retreat" political tournament. Therefore, it is an important intervention in investment motivation to bring up the GDP and the tax in order to display local government performance. Because of the relative backward, the catch-up desire of middle region and west region are more strongly, therefore, there are strong motivations for local government to make intervention. These regions have lower level of development of market-economy and larger proportion of state-owned economy, which provide the necessary condition for government intervention. It can be explained the higher level of capital deepening trend of the middle region and the west region to some extent.Secondly, this paper examines the manufacturing sector employment absorptive capacity and establishes the theoretical model of employment effects of capital deepening, furthermore, makes the empirical test of the manufacturing sector’s employment effects of capital deepening in different regions. The rapid economic growth of China has not brought the increased in employment dominantly. Learned from the theoretical model and expanded, this paper makes an empirical test of the different employment effect of capital deepening between regions. The results show that capital deepening has made a crowding-out effect of labor at the national level. At the regional level, the crowding-out effect of the northeast region is minimal; while the middle region and west region are much higher than the east region.Thirdly, as for the different employment effects for capital deepening, this article discusses the reasons from the aspect of biased technical progress. Based on CES production function from the definition of biased technical progress, this paper deduces the method of calculating the technical progress direction, and accordingly measures the Chinese manufacturing sector’s technical progress during the period1993to2011. The result shows on the national level, the technical progress is biased to use capital and save labor. On the regional level, this article finds that different regions have different biased directions. The middle and west region has the most degree of biased to capital, then is the eastern region, though the northeast region is the heavy industry base, its degree that is biased to capital is relative lower.Compared with the existing literature, this article makes a tentative and exploratory research in the following aspects:Firstly, this paper estimates the capital stock of the manufacturing sector of different provinces using the perpetual inventory method, which supplies the research data basis for the future economic studies. Also, this paper calculates the levels of capital deepening trend and its regional characteristics:the northeast region has the highest capital deepening level, while the middle region and west region have more rapid development trend.Secondly, this paper finds the systematic cause to the different capital deepening levels of different regions, and makes and tentative empirical test. The results show that local governments have the unusual enthusiasm to make large amount of investment in order to promote the GDP and tax revenues through making intervention of financial behavior and enterprises’investment. While the western region’s economic development level is relatively backward, so its desire to catch up is relative strong. The lower degree of market-economy and a large proportion of state-owned economic sector make local governments’intervention become more convenient, so its capital deepening trend is most significant, and the capital on employment "crowding out" is also the most obvious. Meanwhile, the research finds that the capital deepening in the manufacturing sector is not the inevitable result of technological progress which is endogenous economic development, therefore, we can speculate that to some extent, the manufacturing sector’s capital deepening must have some push power that is not endogenous, which confirms the interpretation for the reasons.Thirdly, based on CES production function, this paper deduces the calculation method of technological progress. Accordingly, we measure the Chinese manufacturing sector’s biased technological progress level during1993to2011. The result shows that different regions have different biased directions. The middle and west region has the most degree of biased to capital, then is the eastern region, though the northeast region is the heavy industry base, its degree that is biased to capital is relative lower. As a heterogeneous big country, different regions show different characteristics of industrialization. This paper investigates the different biased technological progress level, and to some extent explains the differences in employment effect of capital deepening between regions. Difficulties and shortcoming of this study is mainly reflected in the statistical data, which is not systematic and perfect. Meanwhile, this study period is20years, compared to industrial history, it has some limitations. In future studies, this paper will further expand the study time series, improve the theoretical models, and learn from the experiences of industrialization abroad, in order to consolidate the basis of this study.