> topics > Economics

Full employment primary goal of macro control

By Liu Changgeng, Jiang Jianping | 2015-08-05
(Chinese Social Sciences Today)

Photo shows a recruitment fair for university graduates. The total number of China’s university graduates will reach 7.49 million in 2015, 220, 000 more than in 2014. University graduates are facing new challenges in finding work.

 

There are four goals of China’s macroeconomic regulation and control: economic growth, price stability, full employment and balance of international payments. Prior to reform and opening-up, people had to face economic shortages from time to time. Their material living standards were extremely low. After the Third Plenary Session of the 11th Central Committee of the Communist Party of China, China  began to view economic development as the central task. Quantity of employment has steadily grown and people’s material conditions have been greatly improved with soaring economic and social progress.


China can properly stabilize prices based on its current macro-control strength. Moderate inflation is the lubricant of economic growth and can promote flexibility of the economy. Balance of international payments is also one of the major goals of the government’s macroeconomic regulation and control. However, few countries in the world can completely realize this objective. Meanwhile, from an economic theoretical standpoint, short-term payment imbalance, as an economic normal, can be accepted, provided long-term balance can be maintained. 


Currently, economic growth aims to satisfy people’s increasing material and cultural demands. Price stability aims to instill enterprises and consumers with stable anticipation for the future, ensuring continuity and stability of production and consumption. Economic growth and price stability ultimately need to be tested through full employment, which serves as both the precondition of safeguarding and improving people’s livelihoods and the key to raising their happiness index.
 

Economic growth and price stability are vital means, not the ultimate goals, for achieving full employment. Full employment should therefore become the primary goal of the government’s macroeconomic regulation and control. In the present economic situation, realizing full employment is of prominent significance.
 

Improving livelihoods
Since the global financial crisis broke out in 2008, China has gradually entered its economic “new normal”: the economy has shifted gears from rapid to medium-to-high speed growth; the economic structure is constantly being optimized and upgraded; and the economy is being driven by innovation instead of input and investment. In this context, many workers face unemployment due to their inability to adapt to economic development.


In addition, amid the tendency of capital replacing labor and machinery replacing manual work, workers face the transition from re-learning and re-training to re-employment. Their once steady source of income faces instability, as the government grapples with continuously improving people’s livelihoods.
 

Around 80 percent of Chinese workers’ incomes come from labor salaries. Workers will lose their steady source of income without steady employment, accessing fewer opportunities to share the fruits of reform and development. The wealth gap will grow and the financial capacity of the government to improve people’s livelihoods may be unsustainable.
 

People care more about employment than economic growth, because it directly concerns their vital interests. Many countries prioritize employment after experiencing “high growth and underemployment” and “jobless recovery.” 
 

Demands of aging population
The number of people in China aged 65 and over increased from 49.91 million to 127.14 million from 1982 to 2012, with an average annual growth of 2.57 million. The ratio of the elderly population increased from 4.9 percent to 9.4 percent at an average annual growth of 0.15 percent, while their dependency rate climbed from 8 percent to 12.7 percent. It is clear that China’s demographic dividend is decreasing, and the aging population is exerting increasing pressure on sustainable economic growth.

 

China is currently adopting social pensions based on the pay-as-you-go system in which pensions paid by employees are offered to the retired. Employees therefore have to bear the burden of the aging population. Constant development of medical science and healthier lifestyles are contributing to longer life expectancies and a growing number of retirees. A large-scale group of employees is needed in future for the increasingly serious aging problem. Full employment should therefore be realized through great efforts.
 

Employment hurdles for graduates
In recent years, the annual number of China’s university graduates has exceeded 7 million. Around 1 million of these graduates face unemployment due to their failure to find jobs, diminishing the country’s talent-dividend advantage.


Currently, employment discrimination is rampant and the entrepreneurial atmosphere is weak. Graduates from top-tier universities, in addition to those who have “personal connections” or “resources,” have the best employment prospects. Many university students, especially those from low socioeconomic backgrounds, struggle to find meaningful employment. Such employment discrimination goes against the policy orientation of equal opportunity stressed in China.
 

China’s university graduates have a lower entrepreneurship rate. The 2013 Chinese University Graduates Employment Report, conducted by educational assessment firm MyCOS, found that the rate of self-employment of 2012 university graduates was only 2 percent, while that of developed countries, such as the US, was more than 20 percent. Additionally, due to imperfect relevant systems and mechanisms, China’s entrepreneurial risk is high and university graduates have a low success rate of entrepreneurship.
 

Generally speaking, university students are not only at the core of achieving the strategy of making China stronger through science and technology, but also a potent new force of economic transformation and upgrading, with their high comprehensive quality and strong vitality of entrepreneurship and innovation. Unemployment of university graduates hinders China’s talent-dividend advantage, meaning it is therefore necessary to realize full employment of university graduates.
 

Integration of migrant workers
In 2013, China’s GDP was 56.9 trillion yuan ($9.31 trillion). Total agricultural output was 7 trillion yuan (5.7 trillion yuan of the added value of primary industry plus 1.3 trillion yuan spent on agriculture by the central government), accounting for about 12.3 percent of GDP. Despite these impressive figures, the rural population doesn’t always reap the benefits.


Based on the total population of 1.361 billion and per capita GDP of 42,000 yuan, the primary industry can bear around 170 million (total agricultural output of 7 trillion yuan/per capita GDP of 42,000 yuan) of the rural population. Taking the urban-rural income gap into consideration, primary industry can support about 500 million (170 million rural population multiplied by 3.03 urban-rural income gap) rural population.
 

Currently, China’s rural population is approximately 630 million, of which 130 million need to transfer to urban areas. China’s urbanization rate reached 53.73 percent in 2013, but 20 percent of migrant workers (270 million) in urban areas haven’t achieved non-agricultural status to date. Once the population of 400 million achieves non-agricultural status, priority should be given to their employment, which is the most powerful guarantee for their long-term stay in urban areas.
 

The government should take full employment as the primary target of macroeconomic regulation and control based on the four aforementioned reasons. According to the China Statistical Yearbook, average annual births were 16.65 million from 1998 to 2013. Calculating based on 5 percent of the natural rate of unemployment in economics, about 15.81 million people should realize full employment every year in the future.


The number of newly increased employees should be 14 million to 15 million in urban areas, excluding workers in rural areas. The number of China’s average annual newly increased employees was 11.98 million, with another 2 million to 3 million expected to be employed annually. The government still faces a long road to achieve full employment. 
 

Some suggestions are therefore put forward as follows. First, establish systems of assessment, reward and punishment related to employment targets, to urge governments at all levels to provide people with better employment services.


Second, intensify support to small enterprises and resolve their fund-raising problems in the mode of innovation financing.
 

Third, provide support to university graduates in employment and entrepreneurship, promoting employment by entrepreneurship; further deal with the problem of unfair employment; develop industries, such as emerging industries and modern service industries, which give play to graduates’ technical and intellectual expertise.
 

Fourth, encourage migrant workers to find jobs in nearby towns or cities, achieving local urbanization; offer services including training in relevant professional skills and employment information; develop industries such as service industry and manufacturing that can provide migrant workers with suitable jobs; and encourage capable migrant workers to return to their hometowns for employment.


Liu Changgeng and Jiang Jianping are from the Business School at Xiangtan University, Hunan Province.