The Efficiency Loss Of Chinese Labor Misallocation

Labor resource is an essential input for economic production activities. Theallocative efficiency and price mechanism of which is a key role in economicgrowth. Along with the rapid development of China’s economy, the huge laborinputs inspire economic growth while also resulting in a non-balanced economicstructure phenomenon; it is a misallocation of employment for various industries,which is labor misallocation. In China, labor misallocation always shows asdifferent industrial labor unbalance in industrial structure, especially between theagriculture and service industry. In recent years, the relevant study shows that theeffect of labor misallocation has affected economic efficiency, and mainly reflectedthe negative effect of total factor productivity. The key of improving economicefficiency is increasing the efficiency of resource allocation. Therefore, we couldimprove the allocation of resources by adjusting the structure of the labor marketdistortions, thereby improving the phenomenon of economic efficiency loss. It alsoreflects the degree of current labor market distortions largely implies the potential ofthe Chinese economy development in the future. Currently, the domestic research oflabor misallocation mainly focuses on the two-sector model and cross-regionalanalysis; however, the labor misallocation is different for different industries.Therefore, it is necessary to in-depth analyze the loss of economic efficiency arisingfrom labor misallocation from the viewpoint of the different industries.In this paper, though building a multi-sectoral general equilibrium model existing the labor misallocation and select the1978-2010years of economic data;we completed a comprehensive empirical analysis of China’s labor misallocation forindustries of agriculture, industry, construction, transportation, finance and realestate. We computed the multi-industrial labor misallocation coefficients byestimating the multi-industrial output elasticity, measured the efficiency loss of totalfactor productivity from the perspectives of labor misallocation, and finallyinspected the factors that lead to labor misallocation. We draw the followingconclusions:(1) the labor misallocation coefficients are significantly different fordifferent industries; agriculture owns the highest distortion coefficient and thephenomenon of labor excessive use; other five industries all represent labor scarceuse;(2) The effect of China’s labor misallocation on TFP is significant efficiencyloss; the mean of overall economic efficiency loss is23%, and shows a graduallyincreasing trend of deteriorating; so it is essential for enhancing the future economicgrowth space to timely and effectively to improve China’s labor misallocation;(3)The effect of multi-industrial labor misallocation movements on TFP is different; thenegative effect of agriculture is most serious and shows a gradually increasing trend,the negative impact of industry is followed;(4) the relative level of skilled labor,wage and monopoly leads to significant negative impact on labor misallocation;reducing the wage gap for different industries and reasonable allocation of the skilllevels of the labor market both are effective to improve China’s labor misallocation.