Forecasting Labor Supply in Urban China: Integrating Demographic Dynamics and Socioeconomic Transition

Interim Reports on work of the International Institute for Applied Systems Analysis receive only limited review. Views or opinions expressed herein do not necessarily represent those of the Institute, its National Member Organizations, or other organizations supporting the work. Abstract China's urban labor market has been under growing pressure to meet the large job demands that are resulting from the Economic System Reform. For more than three decades during the Centrally Planned System, Chinese urban citizens have been guaranteed jobs by the government. Now, the crisis in the labor market might be a source of social unrest. Balancing the urban labor supply and demand has been considered not only an economic issue but also a political challenge. Therefore, a high quality forecast that aims at telling the labor supply dynamic is much needed. By integrating demographic and socioeconomic factors into one forecast model, this research examines the labor force development in urban China to the year 2020. The research shows that in the following 20 years, China's urban labor supply tends to grow at a rate of 2% per year. The development of the labor force tends to be most sensitive to the movement of three factors, namely, urbanization, expansion in higher education and the establishment of a National Social Security System. Fertility and mortality would only make a small impact on the future urban labor market. Urbanization is likely to be the major factor responsible for increasing the number in the urban labor force. The growth in higher education, which can delay the time that young people enter the labor market, could function as a buffer to reduce the tension in the labor market and, at the same time, improve labor quality. The forecast also shows that the income reform and the forthcoming National Social Security System appear to be crucial to the female labor supply dynamic. They make it possible to change the family labor division and thus alter female labor force participation from the plateau pattern to the M-pattern. iv Acknowledgments