Underemployment: Not Peripheral Anymore in China

Underemployment in the covers of a stable unemployment rate should be China’s priority now.

Unemployment and underemployment are two different yet coagulated labor market variables that serve as indicators of economic growth. Economies have executed several policies targeting urbanisation, income equality, and development, among others. The earliest study that dealt with unemployment and economic development found that increasing urbanisation increased inequality in the initial stages. The inequality reduced as income per capital increased. Later, several such studies, with innovations in their models, concluded that there are many determinants of income inequality; especially when the variable is measured from the within-sector perspective, it is seen that wage differences, productivity and skill utilisation in the right job has economic consequences.

A recession, when considered as an economic shock, effects economic growth from numerous angles. The labor market, being one of the largest contributors of income the economy, has a hard time absorbing such a shock. Underemployment during and after the financial crisis was a result of over capacitated industries, and some major structural changes due in economies across the world. While increasing costs for firms had induced lay-offs, unemployed workers found it difficult to find similar jobs. Finding jobs that act as sources of income rather than as a match to their skills became a trend during such times. Thus, the underemployment rate in the US increased to over 6 percent in 2009 alone.  Similarly, in the EU, underemployment rate went up by 8 percent in 2009.

The spillover effect of the financial crisis of 2007-08 had China bawling over its many economic issues, especially its recent underemployment crunch. China is an economy that has undergone myriad changes in the past three to four decades. Urbanisation, in the form of rural-urban migration, has occurred at a decent pace. From 2010 to 2015, urban population in China increased by 16 percent. China, in all fairness has managed to maintain the unemployment rate near 4 percent, for the past five years. It faces a unique situation where unemployment numbers have not intrinsically budged, but where underemployment has surged to higher levels. Unemployment that comes with layoffs and lack of specific jobs that suit one’s skills has not been an issue in China. Local governments in China have done a good job in providing for the broke companies, and have thus secured employment and social status to their citizens. However, since hours of work were cut down, there have been substantial differences in wages; thus, workers have been underemployed in terms of availability for more work. Wage differences ultimately effect aggregate private consumption, and thus supply. An imbalance has created ‘labor underutilisation’ on a large scale, since 2009.

Underutilisation of resources occurs when there are lesser number of opportunities to use these resources, to generate income. Another possible reason would be the lack of funds to institute such resources. An economic crisis has the ability to slow down the brightest of the industries. There is a specific need to fund such industries and bring back quality jobs. Additionally, if entrepreneurship is encouraged, new jobs with requirement of new skills are created, and a new-age workforce can be trained for the future.

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  1. China: A Crisis in the Shaping? – The Radical economist

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