Study On "Cost Disease" Of Service In China

At present, China’s economy is in the period of “New Normal”, during which time, the country’s economic structure is gradually optimized, residents’ income level is rising and service becomes the main consumption. Since 1978, China’s economy has developed fast, so as the service, and it has become a more and more important department in the national economy. The importance of service mainly embodies in two aspects: one is the rise of proportion of the added value of service industry and the other is the expansion of service employment share. As for the GDP proportion,it has risen from 23.94% in 1978 to 48.19% in 2014; As for the employment share, it has risen from 12.18% in 1978 to 38.5% in 2013. Although China’s service has made great achievements, there are some “Cost Disease” phenomena:(1) the labor productivity of service is low and its growth is hysteretic;(2) the employment share of service is gradually expanded and it grows quite fast. To avoid the negative influence, it is necessary to find an effective way to overcome the “Cost Disease”.By studying present researches, I find that there are a lot of literatures studying on the existence of the “Cost Disease” while there are few literatures systematically studying the way to overcome the “Cost Disease”. So, based on the structure of service, divide the whole service into two parts: producer service and non-producer service. Then build a non-equilibrium model based on three departments and do an empirical test by using China’s industrial data during 2003-2013. Research shows that:(1) there is “cost disease” in non-producer service;(2) the hysteretic growth of the labor productivity when compared with manufacture department is the direct reason for the “cost disease” and the insufficient utilization of ICT caused by service’s characteristics is the essential reason;(3) the development of producer service can improve the whole service’s labor productivity and utilization level of ICT, hence it can help to overcome the “Cost Disease”.According to the research above, in order to overcome the “Cost Disease”, China should focus on developing producer service. Thus measures below should be taken: firstly, on the micro level, we should promote the producer service separate from the manufacturing department; secondly, on the medium level, we should enhance the industrial connection between producer service and other industries; thirdly, on the macro level, we should build a beneficial macro environment for the development of producer service. Besides, this article makes some other suggestions from the aspects of market supply and demand in order to help to overcome the “Cost Disease” along with the development of producer service. Furthermore, the labor productivity’s heterogeneity within the services should be noticed to ensure the non-productive services’ s role in promoting employment.