Manufacturing Employment in China

There has been a substantial debate on the issue of whether the decline in manufacturing employment in the United States is the result of technological change, expanding trade, or other factors. My colleague Robert Lawrence finds that the decline in manufacturing employment in the United States, European Union, and Japan is largely, if not entirely, the result of changing patterns of demand—as incomes rise, the demand for goods rises relatively less than that for services—and faster productivity growth in manufacturing. He has shown that the decline in the share of the labor force employed in manufacturing in the United States is hardly unique. It is a trend that is evident in all industrialized countries, even those with large trade surpluses, notably Germany.

The pattern in China, however, has been quite different. Manufacturing employment did dip by 18 million or almost a fifth between 1995 and 2000, a period when the then Premier Zhu Rongji pushed through a far-reaching reform that resulted in the closure of thousands of inefficient state-owned firms.¹ But as the effect of this reform waned, manufacturing employment rose steadily, not only in absolute numbers but also as a share of total employment.

The best data on employment in manufacturing are for urban China. The first column in table 1 shows that, excluding private firms and the self-employed, urban manufacturing employment soared from 32.4 million in 2000 to 52.4 million in 2014. But this is only part of the picture since by the early 2000s private firms and self-employed individuals were an increasingly important component of China's economy. Reflecting this development, the statistical authorities began to publish data on the sectoral distribution of workers in private firms and the self-employed. As shown in column 2, between 2003 and 2014 these urban manufacturing workers increased from 10.9 million to 27.2 million. Thus, as shown in columns 3 and 4, respectively, between 2003 and 2014 total urban manufacturing employment doubled and the share of the urban workforce employed in manufacturing rose from 15 to 20 percent. In addition, there are a significant number of manufacturing workers in rural areas, not reflected in the data in the table. Workers in private firms and self-employed engaged in manufacturing in rural areas rose from 14.5 million in 2003 to 23.6 million in 2014.

Yet, labor productivity growth in manufacturing in China far exceeds that in the United States. Why does China not exhibit the trend of declining manufacturing employment as well? Several reasons are obvious.

• China is growing at a pace several times that of the United States and it is at a much lower level of per capita income than the United States and the other industrialized countries examined by Robert Lawrence. As a result, Chinese household consumption patterns, while beginning to change, are much more concentrated on goods rather than services, leading to strong growth of manufacturing output.
• China's growth over the past decade and a half has been driven largely by a high and rising share of investment in GDP, further compounding the demand for inputs produced in the manufacturing sector.
• Finally, the liberalization of the economy associated with China's entry into the World Trade Organization (WTO) in 2001 led to a huge surge in China's share of global exports and particularly its share of global manufacturing exports, which tripled from 6 percent in 2000 to 18 percent in 2012. In contrast, over the same period the US share fell by half, from 18 to 9 percent.

As a result of these factors, the pace of real growth of manufacturing output in China over the period we are examining was about eight times faster than in the United States. In short, the rapid rise in both domestic and foreign demand for Chinese manufactures swamped significant productivity gains, leading to a sizable increase in the share of workers employed in Chinese manufacturing over the last 10 to 15 years.

Note

1. Chinese Statistical Yearbook 2009, p. 116.