The Declining Agricultural Workforce of China
Student: Leong Michelle Jia Yu (ID: 44403061)
China’s agricultural industry contributes up to 8.6% of the country’s Gross Domestic Product (GDP), and it is the world’s largest producer in gross value of agricultural output such as rice, oil seeds and animal husbandry1. This industry has historically played a key role in China’s economy, leading the first growth phase during the mid-1970s to the late 1980s with the abandonment of collective farming arrangements and the adoption of an incentive-based responsibility system2. The focus of this report is to analyze the decline of China’s agricultural workforce since then.
Figure 1 illustrates the changes in gross industry employment from 2006 to 2016. The number of employees in manufacturing (secondary) and service (tertiary) industries have steadily increased over the last ten years, while the labor force of the agriculture and raw materials (primary) industry has declined by contrast. As of 2015, employment in agriculture constitutes 28.3% of total employment, which is a 36% decrease from 44.8% in 2005. It is an even more significant fall from 52.2% of total employment in 19955. This decline could be explained by the following factors: non-agricultural economic growth, urbanization and aging population.
With the high influx of foreign direct investment (FDI), capital investment, manufacturing production and export in the 1990s, China entered an economic growth phase as the secondary industry flourished. By fostering the development of more capital-intensive sectors with technological transfers from advanced economies, FDI has a negative correlation with agricultural employment share. In addition to promoting faster capital accumulation, technological progress and productivity growth, FDI has increased domestic credit that encouraged private investments in manufacturing sectors. This results in an outflow of labor from agriculture, as higher paying job opportunities are pursued.6 China effectively transitioned from a dual economy to an industrialized country, and faced a general trend of a declining primary sector as the secondary and tertiary industry dominates the employment market with job vacancies.7
As the manufacturing industry flourished, urbanisation became another factor in the decline of agricultural employment. Flourishing business meant the secondary and tertiary industries absorbing labour into urban areas through rural-urban migration. During 1990s, another notable reform was when State-Owned Enterprises (SOEs) stopped providing employment protection benefits for its employees and began competing against stronger non-state sectors with comparative advantage, bestowed by relaxed state regulations of labour allocation and autonomous employment. Established urban workers became threatened by migrant workers, who were armed with the advantage of being willing to work for lower pay8.
Figure 2 shows the changes in composition of urban employment between 2000 and 2007. Despite the stimulation and improvement of the labor market development, it meant that there was a significant discharge from the agricultural workforce as up to 46.5% of urban employment consisted of migrant workers in 2007. Rural-to-urban migration is also the result of large scale surplus labor in rural areas, and it generated two effects of transition and development. Firstly, the reallocation of resources as workforce flows from low productivity (agricultural) sectors to sectors with higher productivity (secondary and tertiary). Secondly, while the wage rate of migrant workers did not increase significantly, the upward surge in total number of migrants improved the total income per rural household in general. While this was an effective solution to poverty and supposedly narrowing the wage gap between rural to urban areas, it also meant agricultural sectors faced a loss of laborers.7
Lastly, China faces diminishing demographic dividends as a result of their population management “one-child” policy. Their labor supply is not only limited, but also declining as the working age population shrinks. Although this meant wages rising for ordinary workers, there is the imminent issue of widespread labor shortages. A survey conducted in 2,749 villages in China indicated that three in four villages had drained their young human resources. A very limited number of those below the age of 30 are employed in the agricultural sector, which notably requires a large amount of labor input regardless of modern (and expensive) technological advancements. This would mean an aging agricultural workforce, one that is also more likely to have received little to no education and are difficult to relocate to non-agricultural sectors for other means of employment.7
To conclude, China’s issue of a diminishing agricultural workforce stems primarily from its burgeoning secondary and tertiary industries, which have consumed the laborers in the primary industry to grow. It is compounded by the matter of a shrinking working population and the aging of the current agricultural workforce. As younger generations that are presumably halved in numbers receive education of higher standards, they are more likely to pursue urban work to avoid underemployment in the agricultural industry. This results in a withering elderly population left behind in the rural areas to work in agriculture.
References:
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