ECONOMIC TRANSITION AND LABOUR
MARKET DYNAMICS IN CHINA: AN
INTERPRETATIVE SURVEY OF THE ‘TURNING
Prema-chandra Athukorala* and Zheng Wei
Australian National University
Has the Chinese economy approached the ‘Lewisian turning point’ that marks the ending
of the initial phase of industrial transformation fuelled by surplus labour? In this paper we undertake an
interpretative survey of the literature on this issue, in the context of China’s labour market conditions
prior to the reforms and structural change of the past three decades. The available evidence is mixed,
and our assessment makes a strong case for probing institutional constraints to labour mobility from
an economy-wide perspective, going beyond the conﬁnes of the rural economy.
China; Economic transition; Lewis model; Surplus labour
China’s enormous economic boom, which is now well into the fourth decade, has been fuelled by
absorption of a vast pool of surplus labour that had been bottled up in the pre-reform economy. According
to the ofﬁcial statistics,
the Chinese peasants moving from the countryside to modern sector activities–
–the so-called ‘ﬂoating population’––increased from about 53.5 million in 1975 to over 268.9 million
in 2013. In addition, restructuring of state owned enterprises (SOEs) resulted in the movement of over
40 million from the state sector to the booming private sector.
In recent years, there have been growing concerns in the China policy circles whether this easy phase
of economic transition fuelled by surplus labour is rapidly coming to an end. The concern was ﬁrst
prompted by a spate of media reports from about 2004 on rising wages and scattered signs of worker
shortages in rapidly growing coastal provinces, particularly in the Guangdong province.
soon spawned a large literature on this issue, using the celebrated Lewis model of economic growth
(Lewis, 1954) as the theoretical foundation. The bulk of these studies conﬁrm the general media view that
China is either close to, or has already reached a turning point in economic transition; labour has become
a scarce commodity that is compensated in a competitive neo-classical fashion [wage equals marginal
product of labour (MPL)] as in the typical mature economy. However, ﬁndings of a number of studies,
which have analysed wages and employment patterns by paying attention to China’s unique institutional
and socio-cultural barriers impacting on labour mobility, suggest that China’s labour markets are not yet
fully geographically integrated.
The purpose of this paper is to contribute to this debate through an interpretative survey of
literature in the context of China’s labour market conditions prior to the reforms and continuing
Corresponding author contact email: firstname.lastname@example.org; Tel: 61 2 6125 8259.
Journal of Economic Surveys (2018) Vol. 32, No. 2, pp. 420–439
2017 John Wiley & Sons Ltd.