China: Labor Market Fundamentals Predict Stagnation

I recently wrote a research paper on China’s labor market, and how the structure and distribution of firms as well as wage effects ¬†might be helpful in forecasting the nation’s growth trajectory.

The study uses a mix of theoretical frameworks and empirical research to construct conclusions. The data comes from the World Bank Enterprise Survey series, with a data set from 2003 and one from 2012.

My conclusion: China is moving in the right direction, but partial and inefficient privatization has blocked the labor market from fully blossoming.

Some key takeaways:

  • Most developed countries witness a concentration of employment in large firms, while the number of small firms declines. China has experienced a significant decline in small firms, but it has not seen a significant increase in employment share inequality.
  • China has a negative firm size wage in 2012 and in 2003. This means that larger firms actually pay lower wages all else equal. This persists even with education and market share controls.
  • The firm size wage effect varies greatly across industries.
  • The negative firm size wage effect has become less negative over time.

To read the full paper and to view the graphs and tables, check out the PDF:

Full Paper