China's Labor Market Integration and the Effect of Economic Openness

• Date: 01 February 2016
• DOI: http://doi.org/10.1111/rode.12215
• Author: Shen Zhou,Miao Yi
• Published date: 01 February 2016

China’s Labor Market Integration and the Effect of

Economic Openness

Miao Yi and Shen Zhou*

Abstract

This research theoretically and empirically studies China’s labor market integration and the effect of

economic openness. We introduce an open parameter to the previous theoretical framework and, based on

that, we carry out an empirical study of China’s labor market integration measurement from 1987 to 2006,

and focus on the impact of economic openness. Research indicates that economic openness has an obvious

effect on promoting China’s labor market integration. The labor market integration progress differs

between regions, with labor markets of coastal areas such as North China, East China and South China,

which have one or two labor market centers, being better integrated than those of other interior areas.

1. Introduction

Along with the opening policy, China’s government has been revolutionizing its

labor market for almost 30 years, with the geographical distribution of Chinese

labor having changed during the process. Based upon large-scale migration from

the interior to the coast, most labor has agglomerated in the eastern part of the

country. Labor movement is an important adjustment mechanism of labor markets,

as well as a significant phenomenon reflecting labor market integration.

Much research takes wage convergence or income convergence as a criterion of

labor market integration. Barro and Sala-i-Martin (1991, 1992) analyze regional

capita income convergence within a country or community and show that the

contribution of a free labor movement to the speed of capita income conditional

convergence reaches around one third. Razin and Yuen (1997) support them,

showing that restrictions on labor flows tend to make per capita incomes of

individual regions more divergent. Several Chinese researchers have studied China’s

inter-province capita income convergence after the country adopted a reform and

opening policy. Lin et al. (1998) find that China’s per capita gross domestic product

(GDP) differentials have narrowed within an area of East, Middle and West China,

but have enlarged between these areas since 1978. Du and Cai (2004) investigate

interregional wage convergence, with their results indicating that wage deviations

for manufacturing industries generally decrease in seven geographic areas of China.

Yang and Sheng (2007) draw a conclusion that although there is large-scale labor

movement in China, the convergence of income is not significant.

*Zhou: Department of International Economics and Trade, Nankai University, 94 Weijin Road, Tianjin,

300071, P. R. China. Corresponding Author. Tel: +86-22-23502983; E-mail: zhoushen@nankai.edu.cn. Yi:

Department of International Trade, School of Economics, East China Normal University, 500

Dongchuan Road, Minghang Area, Shanghai, 200241, P. R. China. The authors wish to thank

participants at the DAAD Conference. Thanks are also due to seminar participants from Kobe

University, Nankai University and East China Normal University. Any errors are the authors’ exclusive

responsibility. The authors acknowledge financial support by the Chinese Fundamental Research Funds

for the Central Universities (NKZXA1403).

Review of Development Economics, 20(1), 164–175, 2016

DOI:10.1111/rode.12215

©2016 John Wiley & Sons Ltd