Download China and India: A comparison of recent economic growth

Recent employment trends
in India and China:
An unfortunate convergence
C. P. Chandrasekhar
and
Jayati Ghosh
Asian century?
• Both China and India have large populations covering
substantial and diverse geographical areas, large
economies with even larger potential size.
• Current “success stories” of globalisation: two
economies that have apparently benefited.
• Success defined by the high and sustained rates of
growth of aggregate and per capita national income; the
absence of major financial crises; and substantial
reduction in income poverty.
Not similar economies
• These economies are often treated as
broadly similar in terms of growth potential
and other features.
• But there are crucial differences between
the two economies which render such
similarities very superficial .
Institutional conditions
• India was a “mixed economy” with large private
sector, so essentially capitalist market economy
with the associated tendency to involuntary
unemployment.
• China was mostly a command economy, which
until recently had a very small private sector;
there is still substantial state control over
macroeconomic processes in forms that have
differed from more conventional capitalist
macroeconomic policy.
The financial sector
• India: financial sector was typical of the “mixed
economy” without comprehensive government control
over the financial system; financial liberalisation since
early 1990s meant further loss of control over financial
allocations by the state.
• China: financial system still under the control of the
state, despite recent liberalisation. Four public sector
banks handle the bulk of the transactions in the
economy, and can regulate the volume of credit to
manage the economic cycle, and direct credit to priority
sectors.
Rates of GDP growth
• The Chinese economy has grown at an average
annual rate of 9.8 per cent for two and a half
decades, showing volatility around high trend.
• India’s economy has grown at around 5-6 per
cent per year over the same period, breaking
from “Hindu” rate of 3 per cent. But very recently
the average growth rate for the last four years is
just above 8 per cent.
Rates of investment
• The investment rate in China (investment as a share of
GDP) has fluctuated between 35 - 44 per cent over the
past 25 years, compared to 20 - 26 per cent in India.
• Aggregate ICORs (incremental capital-output ratios)
have been around the same in both economies.
• Infrastructure investment from the early 1990s has
averaged 19 per cent of GDP in China, compared to 2
per cent in India.
Structural change over four decades
• China: “classic” pattern, moving from primary to
manufacturing sector, which has doubled its share of
workforce and tripled its share of output.
• India: Move has been mainly from agriculture to services
in share of output, with no substantial increase in
manufacturing, and the structure of employment has not
changed much. Share of the primary sector in GDP fell
from 60 per cent to 25 per cent in four decades, but
share in employment still more than 60 per cent.
Trade patterns
• China: Rapid export growth involving aggressive
increases on world market shares, based on
relocative capital attracted by cheap labour and
heavily subsidised infrastructure.
• India: Lower rate of export growth, with cheap
labour due to low absolute wages rather than
public provision and poor infrastructure
development. So exports have not yet become
engine of growth, except in services.
Poverty reduction
• China: Officially 4 per cent of the population now lives
under the poverty line, unofficially around 12 per cent.
(Reflects earlier asset redistribution and basic needs
provision in China under communism, plus larger mass
market and recent role of agricultural prices.)
• India: Official poverty ratio much higher and persistent,
currently 28 per cent. Food deprivation is much higher.
Human development
• China: earlier extensive public provision of health and
education: universal education until Class X, and public
services to ensure nutrition, health and sanitation. (In the
1990s, higher fees and some privatisation of such
services led to reduced access and worsening
indicators; since 2002 revival of public spending in these
areas.)
• India: the public provision of all of these has been
extremely inadequate throughout this period and has
deteriorated in per capita terms since the early 1990s.
Very recently slight increase in education spending but
still well below China; government health spending still
very low.
Inequalities
• In both economies the recent pattern of growth
has been inequalising.
• China: spatial inequalities – across regions –
have been the sharpest. More recently, vertical
inequalities, especially for migrant population
vis-à-vis others.
• India: vertical inequalities and the rural-urban
divide have become much more marked.
Sustainability of current patterns
• China: high export-high accumulation model which
requires constantly increasing shares of world markets
and very high investment rates. Already signs of reduced
unit values of exports and stagnation/decline of
manufacturing employment.
• India: IT-enabled services experiencing current boom,
but competitive threat from other countries, plus question
about whether it will be enough to transform India’s huge
labour force into higher productivity activities.
India: Employment growth
Annual rates of employment growth
for usual status workers (per cent)
4
3.39
3.5
3
3.22
2.77
2.5
2.27
2.03
1.97
2
1.5
1.36
1
0.66
0.5
0
Rural
1983 to 1987-88
1987-88 to 1993-94
Urban
1993-94 to 1999-2000
1999-2000 to 2004-05
India: Growing role of self-employment
Share of self-employment in usual status employment
65
60
55
50
45
40
35
1983
1987-88
Rural males
1993-94
Rural females
1999-2000
Urban males
2004-05
Urban females
India: Growth rates of employment
(Annual compound rates per cent)
1993-94 to
1999-2000
-0.53
1.06
0.03
1999-2000 to
2004-05
2.89
-3.18
0.83
Rural non-agri self employment
Rural non-agri wage employment
Rural total non-agri employment
2.34
2.68
2.26
5.72
3.79
5.27
Urban non-agri employment
Secondary employment
Tertiary employment
3.13
2.91
2.27
4.08
4.64
4.67
Total non-agricultural
employment
2.53
4.66
Agricultural self employment
Agricultural wage employment
Total agricultural employment
India: Real wages of regular workers
Average real wages per day of regular workers
(at constant 1993-94 prices)
110.00
100.00
90.00
80.00
70.00
60.00
50.00
40.00
30.00
20.00
1993-94
Rural males
1999-2000
Rural females
Urban males
2004-05
Urban females
India: Real wages of casual labour
Average real daily wages of casual labour
(at constant 1993-94 prices)
45.00
40.00
35.00
30.00
25.00
20.00
15.00
10.00
1993-94
Rural males
1999-2000
Rural females
Urban males
2004-05
Urban females
India: Organised sector employment
Employment in the organised sector
80
70
60
50
40
30
20
10
Public Sector
Private Sector
Total
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1981
0
India: Labour productivity in organised manufacturing
Net value added per worker (in constant prices)
2.3
2.1
1.9
1.7
1.5
1.3
1.1
0.9
0.7
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1981
0.5
2003-04
2002-2003
2001-2002
2000-2001
1999-2000
1998-99
1997-98
1996-97
1995-96
1994-95
1993-94
1992-93
1991-92
1990-91
1989-90
1988-89
1987-88
1986-87
1985-86
1984-85
1983-84
1982-83
1981-82
India: Wage share of value added
in organised manufacturing
Share of wages in value added
0.35
0.30
0.25
0.20
0.15
0.10
India: Real wages in
organised manufacturing
Average real wages in organised manufacturing
12000
11500
11000
10500
10000
9500
9000
8500
8000
1992- 1993- 1994- 1995- 1996- 1997- 1998- 1999- 2000- 2001- 2002- 200393
94
95
96
97
98
99
2000 2001 2002 2003
04
India: Remuneration in self-employment
Rural males
Rural females
Rural persons
Urban males
Urban females
Urban persons
Per cent
finding their
selfemployed
activity
remunerative
51.1
51.4
51.2
60.9
50.9
58.6
Per cent finding this amount of Rs. per month
remunerative
01000
12.9
34.2
21.2
4.9
32.8
10.4
10011500
17.5
23.5
19.7
8.2
20.2
10.6
15012000
16.5
15.4
16
9.9
12.6
10.4
20012500
11.4
8.9
10.5
7.2
7.7
7.4
25013000
12.9
7.2
10.7
12.2
8.1
11.5
>
3000
27.3
9.9
20.5
56.5
18.3
48.9
Chart 4: Per cent of self-employed workers who consider their own
income remunerative, by income-range considered remunerative
80
70
60
50
40
Rural Males
Urban Males
Rural Females
Urban Females
>3000
2500-3000
2000-2500
1500-2000
1000-1500
20
<1000
30
India: Unemployment rates
Rural India
15-19
Usual
Status
Current
Daily
Status
Usual
Status
Current
Daily
Status
1993-94
1999-00
2004-05
1993-94
1999-00
2004-05
3.3
5.5
7.9
9.0
13.1
15
1993-94
1999-00
2004-05
1993-94
1999-00
2004-05
1.9
3.2
6.7
8.3
12.8
12.6
20-24 All 15+
Males
4.9
2.0
5.2
2.1
6.2
2.1
10.3
5.6
11.7
7.2
12.9
8.0
Females
2.8
1.3
4.9
1.5
9.3
3.1
8.2
5.6
12.1
7
14.9
8.7
Urban India
15-19
20-24
All 15+
11.9
14.2
14
16.2
19
18.4
12.6
12.8
12.5
17.0
17.1
15.8
5.4
4.8
4.4
6.7
7.3
7.3
12.8
13.2
15.6
18.6
18
16.4
21.7
19.4
25.8
28.5
25.9
27.3
8.3
7.1
9.1
10.4
9.4
11.6
China: Work force distribution
1952
1965
1975
1985
1995
2005
Primary
83.5
81.6
77.2
62.4
52.2
44.8
Secondary
7.4
8.4
13.5
20.8
23.0
23.8
Tertiary
9.1
10.0
9.3
16.8
24.8
31.4
China: Output and employment growth
Primary sector
Annual employment growth
Annual Value Added growth
Employment elasticity
Secondary sector
Annual employment growth
Annual Value Added growth
Employment elasticity
Tertiary Sector
Annual employment growth
Annual Value Added growth
Employment elasticity
All sectors
Annual employment growth
Annual Value Added growth
Employment elasticity
198090
19902000
2.8
6.2
0.45
-0.8
3.8
-0.21
5.9
9.5
0.62
1.6
13.5
0.12
7.9
12.2
0.65
5.1
9.1
0.56
4.1
9.3
0.44
1.1
10.1
0.11
China's exports
800
60
700
50
600
40
500
400
30
300
20
200
10
100
0
0
1981 1982 1983 1985 1986 1989 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Total exports, $ bn
Per cent processed in total exports
US clothing imports from Mainland China
30
6
25
5
20
4
15
3
10
2
5
1
0
0
1995
1996
1997
1998
1999
2000
2001
Volume-based market share
2002
2003
Unit value
2004
2005
China - Employment in manufacturing
11000
10000
9000
8000
7000
6000
5000
02
20
01
20
00
20
99
19
98
19
97
19
96
19
95
19
94
19
93
19
92
19
91
19
90
19
89
19
85
19
80
19
19
78
4000
China: Urban employment
Share of urban employment by type of employer
90.0
80.0
70.0
60.0
50.0
40.0
30.0
20.0
10.0
State owned units
Collectives & coops
Other private units
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1985
1980
1978
0.0
Self-employed
China: Rural non-agricultural employment
Share of rural employment
35.0
30.0
25.0
20.0
15.0
10.0
5.0
TVEs
Private enterprises
Self-employed
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1985
1980
1978
0.0
China: Annual change in real wages
1978
1980
1985
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Average
of all
units
Stateowned
units
Urban
collective
units
6.0
6.1
5.3
-4.8
9.2
4.0
6.7
7.1
7.7
3.8
3.8
1.1
7.2
13.1
11.4
15.2
15.5
12.0
10.5
12.8
6.2
6.0
4.8
-4.6
9.7
3.2
7.0
5.7
8.7
0.4
2.6
4.2
6.7
12.9
10.9
16.2
16.3
12.3
11.1
13.6
5.1
6.9
6.6
-6.1
6.6
5.6
4.1
5.9
0.2
3.7
0.6
1.7
3.1
9.7
7.6
8.9
12.7
12.2
9.5
13.2
Units of
other
ownership
type
22.5
-2.3
8.9
10.5
5.3
7.9
1.5
1.4
1.7
3.2
-1.7
11.0
10.9
9.7
9.9
9.3
8.0
10.4
Unorganised and migrant workers in China
• These real wage data leave out the increasing proportion
of unorganised workers, most particularly the rural
migrants.
• Rural-urban migrants currently estimated by CASS to be
around 150 -180 million (half the urban work force).
• Recent CASS survey shows that in 2005 a majority of
migrant workers were in informal activities and typically
faced long hours of work for all days of the week, for less
than minimum wages and with poor residential
conditions.
China - Investment and consumption rates
44.0
68.0
66.0
42.0
64.0
40.0
62.0
38.0
60.0
36.0
58.0
56.0
34.0
54.0
32.0
52.0
50.0
19
78
19
79
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
30.0
Investment rate
Consumption rate
Current issues similar
Most important problems in both economies
are currently the same:
• Agrarian crisis
• Inadequate generation of employment in
terms of “decent work”
• Public neglect of social sectors
• Growing inequalities.
Lessons
• For more inclusive growth, the generation of good quality
productive employment is the most critical variable.
• Need growth strategy that allows and encourages labour
productivity increases overall while significantly
expanding expenditure – and therefore income and
employment opportunities – in social sectors.
• Major role for state intervention, through direct public
investment and through fiscal, monetary and marketbased measures that alter the structure of incentives for
private agents.