chapter  7
14 Pages

Policy reforms of labor mobility and urbanization in transition China

ByF ANG CAI

Introduction One of the government policy tools adopted by most developing countries and countries in transition at their early stage of development was to provide the accumulation needed for industrialization by separating urban and rural factor markets, making access to social welfare system unequal so as to ensure a higher standard of living for urban residents (Knight and Song 1999; Anderson 1995). While the planned economy era in China was no exception to this, it displayed a unique feature – that is, separating urban and rural labor markets by means of the household registration or hukou system. The economic reform, which began in China in the late 1970s, and its growth effects have been recognized by the world, and have aroused high levels of interest in other countries, especially developing countries and countries in transition from central planning economy to a market one with similar institutional starting points. Reform of China’s labor market policy, however, has been regarded as an area of reform lagging behind (e.g. Lardy 1994: 8-14), partially because of unavailability of accurate statistics. This chapter illustrates reforms in this area to form a complete picture of China’s overall reform logically linking different parts of the reform. In addition, this chapter also reveals the consequence of labor mobility reform, which is consistent with that in other reform areas. Deregulation of labor mobility policy is one of the important tasks for countries in transition, while urbanization is an inevitable process for developing countries. Economic reform of China has been characterized as combining reform measures with economic growth (Naughton 2006: Chapter 4; Lin et al. 2003: Chapter 9). Like the overall reform, while labor mobility policy reform directly aims to improve allocative efficiency, it has actually resulted in acceleration of urbanization during the reform period. While labor market integration and urbanization are general trends commonly pursued by developing and transition countries, China’s unique institutional settings formed in the planning period and characterized by a troika of People’s Commune, state monopoly distribution of agricultural products, and hukou system have generated special features of its reform process, posing particular challenges for its reform in the area. This chapter, after reviewing major steps of labor mobility policy reform in the past 30 years, explores further reform tasks laying ahead for China.