Labor Shortage And Middle Income Trap In China

Over the past three decades China has rapidly and steadily experienced high rapid economic growth during the phase of industrializing. With 1.3 billion populations, China’s unlimited labor supply is one of the key factors contributing to China’s abnormal economic performance during the reform period. By shifting large numbers of rural surplus workers or farmers into urban industrialized sector, China was able to achieve extraordinary productivity growth and at the same time keeping inflation stable. Low labor cost has been foundation to this rapid growth and become global manufacturing center.As the world’s largest exporter of manufacture goods, China has been a great extent to determine world prices. In the history of economic development, there is no country can rely on cheap labor forever. If China’s labor cost begins to rise, it will not only affect the cost of Chinese products, but also the global market prices. Therefore, China will lose its main growth model in competitive global market. There are two main objectives of this thesis. Firstly, to examine current literature and provide better understanding of current China’s labor market and identify whether a Lewis turning point has been reached. Secondly, to give opinion on whether China is able to avoid’middle- income trap’. Based on the current literature, the result of this thesis suggests that a considerable pool of unskilled labor is still available in the rural sector and offers some implications for China to avoid middle-income trap.