Download Selection of Production Mode and Employment Solution for Regional Development

M & D FORUM
Selection of Production Mode and Employment Solution for Regional
Development
ZHANG Guangling1 2 , DENG Desheng1
1. College of Business, Central South University of Forestry and Technology
2. Department of International Students, CSUFT, No.498 South Shaoshan Road, Changsha City, Hunan
Province, P.R.China, 410004
[email protected]
Abstract: In view to the regional economic growth of developing countries, this paper takes the basis of
relative price theory that the choice of the production ways depends on production factors. Combining
the current situation, this paper holds the idea that economic development should start from the actual
requirement of increasing employment and develop simple labor-intensive industries in the condition
that the relative prices of our country's labor are low at present. It also proves the relationship between
simple labor-intensive economic model and technology innovation, and puts forward the relevant
countermeasures to increase employment in China, including readjusting the industrial structure,
perfecting the labor market and strengthening human resources development, etc.
Keywords: Production Mode, Production Factors, Employment, Labor
1 Introduction
The production mode of economic society is embodied in the numeral structure relationship between
means of production and labor. In the choice of production mode, there are: capital with less labor and
labor with less capital. The former is capital-intensive; the latter is called labor-intensive.
Labor-intensive production mode can be further divided into two forms: simple labor-intensive and
complex labor-intensive. Labor-intensive production refers to a kind of labor way that a normal labor
can be competent adopt without special training [1]. With the influence of
financial crisis and
adjustment of the world’s division structure, the domestic employment situation has undergone
fundamental changes. It becomes particularly important as how to effectively expand employment
growth and promote the sustainable development of regional economy. For China, a developing country,
labor price is relatively lower, compared with other production factors. Simple labor-intensive
production mode undoubtedly has important practical significance in economic development. Starting
from this point, this paper has an analysis of the selection of production mode and related
countermeasures to increase the employment. From the angle of labor resources of productivity, it has a
study on the sustainable development of regional economy.
2 The Selection Basis of Regional Production Mode
2.1 Principle of cost minimization
Production factors refer to the main indispensable factors in production activities or main methods
necessarily involved in production. Modern western economics consider that production factors include
labor, land, capital, entrepreneurs’ ability. With the progress of science and technology in human society
and the establishment of intellectual property system, production technology and information are also
put into production as relatively independent elements. Through market exchange, such production
factors have forma a variety of factor prices and systems[2]. From the economic theory, there may be
hundreds of combination as how many production factors should be put into product or service
manufacturing. There is no an absolutely good combination. Regional economies or enterprise's
policymakers will make different choices according to advantage of different resource factors. In all
sorts of production factors, labor is the dominant factor. In the production practice, the investment of
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labor force and other production input can be mutually replaced. In a certain scale of production
conditions, increasing the investment of labor force can reduce the capital and other investment. As
shown below, when the combination of production factors is located in B, there need less labor
resources A2. When the combination is in A, A1 is needed to compensate for the shortage of labor force.
Figure 1: Diagram of relations of production factors inputs
(Source: Chang Zhiqiang http://www.mlr.gov.cn/zljc/201008/t20100811_734832.htm).
With the view of the regional economic development, it is the most economic production mode when
producers obey the characteristics of regional production factors and resources advantages and follow
the principle of the best combination of cost minimization. Therefore, the choice of the ways of
production factors is actually due to the price differences of production factors.
2.2 Principle of the relative price of production factors
Factor price refers to the cost or rewards of production factors. In free, competitive market, the relative
price of production factors is mainly dependent on their factor endowment structure[3]. This is because
different combinations of the factors depend mainly on the relative price or relative cost when applying
different factors. If labor cost is high and the relative cost of capital is low, more capital with less labor
is adopted. Otherwise, less capital with more labor is required. How to compare the relative prices of
production factors? We can use the profit comparison and history comparison. The profit comparison
means that, if a factor can provide higher benefits. That’s to say, such factor is cheaper. Conversely,
other factors are cheaper. As for history comparison, it sets a certain time as parameter. If prices of all
factors are on the rise and the increasing range of one of the factors is bigger that that of other factors,
such factor should be reduced in production. Conversely, it should be increased. The relative prices of
production factors are divided into two kinds: one is decided by the supply and demand relation in factor
market, which reflects their different scarcity. The price of relatively abundant factor is lower; the price
of relatively scarce factor is higher [4]. The other is the relative price structure of production factors,
which reflects the preference of government officials or regional economic policymakers. Since the
signal of resources allocation is distorted, which cannot reflect the true scarce degree of production
factors of, it will go against production inputs, saving and rational allocation.
3 Employment Increasing is the Inevitable Need of Economic Development
Betil Gotthard Ohlin, a famous Swedish economist, holds the idea that all countries should produce
cheap products to exchange foreign cheap and good commodities with the use of abundant and
inexpensive production factors[5]. In the process of the transformation and adjustment of current
international industrial structure, the international division has become clear. It could play a better role
of the comparative advantage of Chinese factor endowments by choosing simple labor-intensive mode
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to promote the core competitiveness of product and service.
3.1 Objective need to mobilize production factors
3.1.1 Serious labor surplus
In view to actual situation of production factors, Chinese labor surplus phenomenon is very severe.
Statistics from National Labor and Social Security Ministry show that in 2006, the population of rural
labor transfer in situ or out of is 200 million, accounting for 41% of all rural labor. According to the
current level of productivity and the estimation of agricultural material costs, if we assume that
agriculture needs 178 million labors, the rural surplus labor will be 110 million, accounting for 22% of
national rural labor[6]. Since the natural population growth is more than 10 million labors and there are
liberated labors from high-tech and productivity improvement, 200 million laborers urgently need to
obtain employment opportunities. China is faced with the core stage of the urbanization development;
economic industrial structures are in imbalance; many rural people pour into the city for employment.
After the global financial crisis in 2008, China's surplus labor force has not exhausted. Due to the
income gap between urban and rural area, the trend that rural labor constantly transfers to city will not
stop. In 2008, the rural labor transferring to city accounts for 25% of the total number of rural labor. In
2009, this proportion falls to 23%[7]. In this situation, China’s structure of resources endowment,
especially the comparative advantage of labor factors remains unchanged. They also won't change in the
near future.
3.1.2 Huge number of idle assets
The statistics of the State-Owned Assets Supervision and Administration Commission of the State
Council shows that 2005-2009, China's total assets of state-owned enterprises increased from 25.4
trillion yuan (RMB) to 53.5 trillion yuan (RMB), with an average annual growth 20.5%
from2005-2009[8]. The idle rate is up to 15%-20%, which means about 10 trillion of giant state-owned
assets are idle or inefficient. So huge amount of material factors and labor surplus show that China has
obtained sufficient conditions to fully exert the huge potential of various idle production factors to
alleviate current employment pressure.
3.2 Intrinsic demand of labour factors
Human resource factor is an increasingly important source of economic growth, and also the most
dynamic productivity factors. if not made full use of, it will consume plenty of material wealth of
society as spending power. The characteristics of labour force factor have decided the government
departments must fully develop and utilize this factor. It can accelerate improving production capacity
and guarantee the future regional economic development to reasonably deploy labor resources factors
and continuously improve their employment qualities and skills through vocational training and
practice.
3.3 Best choice of the production mode
In activities of market economy, the allocation of production factors depends on the scarcity, production
efficiency and relative prices of the factors. In order to realize the maximization of profit, enterprises
will try to use cheap factors, instead of that with relatively high prices in the choice of production mode.
Since the reform and opening up, land, capital and other production factors in China's economic
departments have been in short condition. And the salary of laborers, regardless of its absolute or
relative value, is very cheap, which causes that the entrepreneurs always choose labor instead of capital
in the process of regional economic development. This is a natural result by following the market price
structure and its regularities of changing trend. Therefore, the development of market economy
objectively requires to fully develop the effects of labor resources market and establish the real
platforms for labor supply and demand.
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3.4 Inevitable result of the international division of labor
In the industrial structures of Euramerican developed countries, the successive transfer of the three
industries have been achieved. And the third industry (Services) accounts for about 70%. The overall
social richness leads to the excess phenomenon of industrial capital. Moreover, the shortage of
population and the high cost of labor factors aggravate the pressure of the capital outputs. Along with
the development of the science and technology and information, the process of global economic
integration is increasingly faster. Generally speaking, the criterion of foreign investment is low cost plus
high efficiency plus on-time delivery. For labor-intensive industries, labor cost is preferred reason for
foreign investor's choosing China as processing base. In the end of 2008, even after the financial crisis,
China's labour average cost is only $1200 per capita each year even if the salary appeared to go up.
According to the concept of labor cost, international current standard includes the wages of labor, all
kinds of subsidies and training fee. According to such calculation, the cost of Chinese labor force is only
equivalent to 2.2% that of America, 1/3 that of Mexico, 1/4 that of Brazil [9]. The deep influence of the
urban-rural dual structure, and the internal contradictions of the industrial structure have decided the
present situation that the developed countries transfer labor-intensive industries to China will not be
changed in the short term. The position of the world's manufacturing center will exist for a long time.
China's huge and cheap labor resources have become the comparative advantages in the chain of global
economy industry. Temporarily, Lewis Turning Point will not appear.
4 Countermeasures to Increase Employment
From the economic theory, there are three alternative ways of a simple labour intensive mode:
converting, upgrading and improving[10]. According to the current domestic production factors and
comparative advantage, it is an objective and ideal choice for Chinese society to place emphasis on
improving the domestic and foreign economic and social environment the simple labor-intensive
industry faces, through improving conditions with the breach of labour force factor.
4.1 Adjust the industrial structure & promote employment growth
After the global financial crisis, the country needs to actively adjust the industrial economic structure,
implement policies and measures to promote the industry development, try to develop labor-intensive
industries with the regional comparative advantages and market demand, support the small and
medium-sized enterprises, encourage and guide the development of the non-state economy and promote
employment growth. The government should set it as an important target of macro-regulation to
increase employment scale and control unemployment and put it into the plans of national economic and
social development to combine the macroeconomic regulation and control with the expansion of
employment and take a series of policies and measures to promote employment. In addition, based on
the social reality that many rural workers flood to work in cities, it is of necessity that the policie of
urban-rural dual structure be loosened, the employment of urban and rural coordinated, the investment
in rural infrastructure increased, county economy vigorously developed, the construction of small towns
strengthened, the employment and transfer of rural labor out and on-site guided.
4.2 Establish and perfect the labour market
In view of the inefficiency of the collection and transmission employment information in the labor
markets in many cities, instead of employment opportunities, regional labor market should be built and
opened to realize the rational flow and marketization of regional labor factors, namely to replace the
introduction of job opportunities from friends or relatives with information exchanges in labor market
and reform the labor system of state-owned enterprises and institutions in order that the labor market can
truly reflect the the scarce degree and price of labor factor. At the same time, a regional even national
labor market network should be established to have a timely communication of the information of
recruitment, advertisement, salary level and other aspects of the labor market. The system to release to
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professional supply and demand information to the society regularly should be cultivated to form a
better employment service system, which can be connected with the relevant governmental website to
become an important tool for government to regulate the supply and demand of labor market, guide
employment and training and lead the rational flow of labor.
4.3 Strengthen the development of human resource
In the social reality of total surplus of labor force and the uneasy process of China's transformation of
industrial structure, it is unavoidable that there exists social unemployment. To control the
unemployment rate in a certain range and amplitude will not affect social harmony and stability. The
country needs to strengthen the comprehensive construction of human resources ability, actively
advocate the growth of the whole social inclusively, further perfect modern national education system
and lifelong education system, set up training system for vocational education, all-round develop human
resources omnibearingly and constantly improve the comprehensive quality and employment ability of
the labor. In addition, as for the unemployed and reemployed people, the social security system should
be perfected, the pace of social security law construction speeded up, multi-canal financing mechanism
perfected, the operation of social security fund investment actively carried out to realize the sustainable
development of social security and constantly improve the social security level.
5 Conclusion
The selection of production mode of regional economic development is actually resulted from the price
differences of production factors. As the largest developing country, in China's factor endowments
structure, the contradiction of labor surplus and obvious advantages of relative price is prominent. After
the global financial crisis, we still need to examine the reality calmly and set employment expanding as
the foothold of China’s industrial economic transformation of to promote the sustainable development
for the whole society. On the basis of simple labor-intensive mode, the industrial structure needs to be
actively adjusted, the total economy expanded, employment opportunities increased and the adverse
effect of the urban-rural dual structure overcome. The factor market of labour force should also be
perfected, which can truly reflect the scarce degree and price of the labor factor and helps to establish a
national employment service system. Meanwhile, human resources development must be strengthened
to constantly improve the comprehensive quality and employment ability of the labor and ensure the
socialist China’s inclusive stability and development.
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