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Unstable labor relationship will harm the social harmony in China
--Some thoughts about the current labor relationship management of China
Li jie
School of Management,
South-Central University for Nationalities, P.R.China, Hubei Wuhan 430074
Abstract Since the reform and opening up of China, we substantially adjusted the labor relationship [1]
in traditional system, featured as ‘communal pot’ and ‘iron rice bowl’. The new labor relationship in
socialistic market economy has been established primarily. How to understand the current situation of
the labor relationship in China, especially how to correctly regard the continuously emerging new
situation and new problems in the field of labor relationship of China, and adjust it according to the need
of establishing socialistic harmonious society, have become a new intriguing topic, and will be discussed
in this article.
Keywords Labor relationship, institutional change, harmonious society, adjustment
1. Introduction
Since the reform and opening up, guided by the principle of managing the resource distribution with
market mechanism, we made deepening and substantial reform on the traditional labor relationship
featured as ‘communal pot’ and ‘iron rice bowl’. Fundamentally speaking, we are building the new labor
relationship featured as market mechanism, by introducing competition to suit the establishment of
socialistic market economy. Now in China, the labor relationship has gone through deep changes.
Compared with the labor relationship in traditional system, the new labor relationship has new features
in property, structure and content, also new problems. According to the domestic research, the
continuous rapid economic growth in China does not improve the employment or the labor relationship.
On the contrary, they demonstrate increasingly unstable characters especially in the following three
aspects: the worsening employment situation, dramatic increase in industrial accidents without effective
control and the dramatically increasing cases of industrial disputes. [2] They will seriously influence the
development of economy and society of China. In recent years, people are considering a problem ‘the
benefit and dignity of common labors can’t be sacrificed for the fast development of economy’. The
significant social value of the recent labor relationship variance in China and its long term impact to the
society need to bring more attention and be studied thoroughly. Therefore, the study of the current labor
relationship problem in China from economics, management and sociology point of view has significant
theoretical and practical value, which is also the basic background and starting point of the study of this
article.
Regarding the current situation of the domestic and international research on labor relationship, western
developed countries have passed the stage of simply socially criticizing the labor relationship. Either the
supply demand analyse in traditional neo classical economics paradigm or the recently emerging new
system economics paradigm has reached a relatively more mature research stage on labor relationship,
especially the research on employment relationship (search theory, internal labor market, efficiency
salary, recessive bond) with the firm theory of new institutional economics has provided new angles and
continuous inspiration for viewing and analyzing the labor relationship problem. In the mean time, some
western economics and management theory, especially the economics of the labor market needs to be
enriched and testified with the practical cases in the marketing reform of China.
In China, the research on the labor relationship variance and institutional change during the process of
the reform is still at the beginning stage, and still in need of systematic research results. Now there are
two evident trends in the research: On one hand, many research were merely based on the collection of
practical materials of the labor relationship variance since the reform and the simple description of them
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(also not systematic), on the other hand there is a unsuitable application of the western theory, and the
selection of theory and research object are premature and partial. For example, the non-labor factor price
balance mechanism is indiscriminately applied in labor factor market. This is the deep cause of the short
term and temporary labor relationship application in many enterprises. Another example is that
management incentives rather than labor incentives are considered by many researchers on the incentive
problem. These are all evidences to prove that the research on labor relationship problem in China needs
to be improved and deepened.
Based on the particularity of human capital (or particular property right character), the employment
relationship is in fact a market relationship very different from non-labor factor market relationship.
Therefore, special institutional arrangement in labor relationship is necessary to ensure enough incentive
inside the economic organization. Currently, various research results all indicate that keeping a long
term stable labor relationship is the infrastructural and systematic guarantee for continuous economic
development and long term social harmony. Simply apply the non labor factor market price balance
mechanism into labor factor market and regard the market reform of labor relationship in China as the
massive application of short term and temporary labor contract relationship, are the causes for the
weakening of labor factor market, lack of incentive for common labors and the outstanding social
problem in labor relationship. It will seriously harm the continuous economic development and long
term social harmony. This article will make first step discussion to the regarding problems. It’s not
mature in some aspects, even only intuitions and senses in some parts, and will be further enriched.
2 Instability is the primary current situation in the labor relationship of China
What’s the current situation of the labor relationship in China? The official opinion is: a new labor
relationship to fit the socialistic market economy has been established. [3]Someone said it’s
marketization, and summarized the basic connotation of it:
Because of the co-existence of various
economic and management form, the from of labor relationship is also various and complicated, The
main body of the labor relationship is clear, the employer and employee are in equal position The
establishment of labor relationship has been institutionalized, which means employment contract will be
signed by both freewill parties to confirm the labor relationship. The dynamic balance of the labor
relationship, which means the labor system reform gives legal pledge to both parties, reduce uncertainty
and create a rational flow mechanism and environment.[4]
Our opinion is that the above summaries are generally too standardized and optimal, far from the real
situation and lack of real sense. According to the current environment and condition in China, some
obvious facts show that the summaries are far from reality, except the part about the variety and
complexity of the labor relationship.
Currently, the employer and employee are not in the so called equal position, their position are seriously
unbalanced. Generally the employers are in strong position, and employees are in weak position,
whether they are in national enterprise, private enterprise or foreign enterprise; This situation seriously
compromises the freewill signing of labor contract in the implementation of labor contract system. It’s
very popular that in real situation, the labor contract is not standard or not signed at all. The situation for
national enterprises or for the highly skilled labors with stronger negotiating power is relatively better,
and it’s worse for private and foreign enterprises or for the ordinary labors; Finally, the so called
dynamic balance of labor relationship, bi-directional selection and rational flow are more optimistically
estimated. The real situation is that many employers can easily revoke labor contracts, violate the
common labor’s legal rights, and the ‘high end’ labors choose ‘job hopping’ frequently, break contract
and violate the employer’s legal rights. These two situations are obvious in some enterprises, and the
first situation is more often.
Now it is obvious that the standardized and marketized labor relationship fitting the socialistic market
economy is not established yet. After the collapse of the relatively more stable labor relationship (life
employment) in traditional system, represented by the whole people ownership and collective ownership,
the current existing labor relationship is a unstable relationship featured as short term, temporary and
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flowing. This unstable labor relationship should be understood from the following two aspects:
First, the unbalance of labor relationship is extensive in various industries and fields
It can be summarized as ‘four trends’ that is the succession in traditional fields, the generalization in non
public sector, the expanding in national enterprises and the uptrend in non-business organizations. The
succession in traditional fields means that in traditional fields such as construction, service industry, the
short term and temporary employment is a long time tradition, and not changed much since the reform;
The generalization in non public sector means that in private and foreign enterprises, the pervasive labor
relationship is short term and very weakly maintained; The expanding in state-owned enterprises means
that along with the system reform of the national enterprises in China, to fit the property right reform,
most state-owned enterprises have massively adjusted the original labor relationship, cease the original
labor contract and replace it with ‘length of service buyout’. It is a expanding process in state-owned
enterprises; The uptrend in non-business organizations means that the responsible national bureaus are
discussing the labor reform in non-business organization. From the tentative plan of the reform, we can
see that the whole staff retain and contract system will be the primary solution. It can be expected that
the evolution trend of the labor relationship in non-business organizations will be from long term and
stable to relatively flexible and short term.
Second, the unbalance of labor relationship is for all individuals
The short term and temporary labor relationship has moved from non-city and semi city population to
the universal population.
The short term and temporary labor relationship has moved from primary labors to higher class labors,
management level employees and non-business organization crews.
Therefore, we argue that the whole society level unstable labor relationship is the basic status quo of
China. The instability is not only far away from standardized and marketized labor relationship, but also
a serious hidden trouble for the stability of China society and continuous social and economic
development. It’s an important cause for the increasing and deepening conflict in labor aspect. [5]
3 The main problems and their impacts in the labor relationship in China
Currently, the instability of labor relationship has caused a series of serious problems in China economy
and society and needs to attract serious attention.
In non state-owned sector, based on the fact of the unlimited supply of primary labors in China, there is
strong unbalance in most private and foreign enterprises. The labors have no negotiation power and are
controlled by the employers. From labors’ point of view, the maintenance of the labor relationship is
very weak and the serious problem is that the basic rights of the weak labor group are often seriously
infringed. It’s demonstrated in the following aspects: 1, Overtime working is very serious. In private
and small foreign enterprises, it’s very common for workers to work 12-13 hours a day and it seriously
harm the health of workers by exceeding their endurance limit; 2, Outstanding payment and skimp of
salary by the employers and it has been a seriously concerned problem of the society; 3, The working
condition is very bad. Workers have to work in high temperature, poisonous and harmful environment
all the year and industrial accidents are frequent; 4, The employers wantonly infringe other legal rights
even human rights of the labors. They refuse to sign labor contracts, pay the medical fees for the
industrial accidents, or pay the legally prescribed compensation for industrial accidents. They fire labors
at will, charge deposit and refuse to establish female workers protection provision. They even infringe
workers’ human rights by ‘close management’, personality humiliating frisk and abuse. They brutally
enforce labors to work and manage them in violent ways. [6]
The main problem in state-owned economy is that some local governments and enterprises did not pay
enough attention to the change of labor relationship in the process of system transform. Some
State-owned enterprises only conducted the property right reform while leave the labor relationship
untouched. The result is many problems in the process of retiring employees and ceasing labor contracts.
On the other hand, there is no overall plan in the process of the reform of state-owned enterprises and it
caused the following problems: The first is that many small-scale state-owned enterprises are in a very
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troubled situation with serious financial crisis and heavy employee burdens. Without the overall
planning of the government, these enterprises can not conduct the transform by themselves. The
enterprises that should go bankrupt linger on for too long, and some of them become indebted in the
long waiting process. In this case, the government has to pay great cost to keep the workers while leave
the original economic structure and employment mechanism unchanged; The second is when some
troubled enterprises is not able to pay all debts and compensation to the employees, they will cease the
labor relationship unilaterally and conduct ‘length of service buyout’. Some enterprises only pay 2000 to
3000 yuan to each employee and send them away. It will surely arouse strong complaints of the
employees and will cause serious social problems; The third is while most transforming enterprises is
unable to pay compensation to the employees, some enterprises with good profits and asset tend to ‘split
everything’. For example, some enterprises pay tens of thousands yuan of compensation to the
employees. It causes the lapse of state asset and jealousy from employees in other enterprises, a cause of
social instability.
The above problems caused by the instability of labor relationship will impact the future development of
China’s economy and society in the following three aspects:
First, it is not good for the long term optimal expectation of whole society economic development. From
the labor’s point of view, the instability of labor relationship means lack of guarantee on their basic
living conditions, instability of their income and will affect labor’s expectation for future consumption.
Plus the worries for the reforming house, medic and annuity policy and increasing fee for children’s
education, the consumption of common labors will be further restrained. It will harm the continuous
healthy development of the macro economy of China in long term. On the other hand, from the
employer’s point of view, the instability of labor relationship means that the enterprise can’t effectively
find suitable employees, hence they can’t have good expectation of the continuous fast development.
Many ‘high end’ labors with special skills or resources do not sign labor contracts or only sign short
term ones to make it easy for them to ‘job hopping’. It’s harmful to the long term development of the
enterprises hence many enterprises are reluctant to invest in long term training for their employees with
the worry for the uncertainty. It’s a bi-directional harm to both enterprises and employees. What’s more,
the frequent renege and ‘job hopping’ by the ‘high end’ employees will cost great losses in business by
leaking of business secrets and the employers will get more cautious. In this condition, it’s hard for the
enterprises to form optimistic long term expectation.
Second, it will lead to the lack of positive incentive to common society members. The research results of
the modern economics and management have shown that, the incentive to common society members is
the deep driving force of the continuous development of modern economy and society. How to let the
incentive function? First it’s system, second it’s culture. Objectively speaking, for more than 20 years,
the reform to establish new labor relationship is a major social project and system change for new labor
incentive system. To a large extent, it has changed the ‘iron rice bowl’ and ‘communal pot’, destroyed
the hotbed for laziness. However, the actual problem is that, the old system has collapsed while the new
system is not established yet. The positive incentive from the unstable labor relationship featured as
short term, temporary and fluidity will be twisted under certain social conditions such as the serious
strength unbalance between the two parties. Imagine! When moderate concern for hardship become
unsureness in everyone, when independent job selection, bi-directional selection and rational flow
become the pervasive trend of temporary employment, can we still give high expectation to the
committed cooperation of the two parties of the labor relationship? Can we still hope that common
labors will show their sense of responsibility and commitment to the enterprise? The history of the
western industrialization process shows that the harmonious labor relationship is the social foundation
for the development of modern enterprises. The relationship featured as humanism and respect for
human is the result of hundreds of years of labor movement and also the reason for long term stability in
western society. Look back to China, the labor relationship has features of the original accumulations in
the early stage of capitalism. Some people say, as the nation has too much low level population,
powerful enforcement of incentive is only resort and it’s the necessary stage and cost for the
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development of market economy. We can’t agree with this bare ‘X incentive theory’ type of argument
(assuming human are born lazy and lack of independence). We don’t deny the effect of system incentive;
we can’t deny the effect of cultural incentive too. In fact, many countries and enterprises have noticed
the harm of unstable labor relationship and tried many ways to establish long term incentive system for
labors. For example, Japan created the well known Japanese enterprise management culture featured as
life employment and service of length related incentive. It is an important reference for China with
similar cultural background.
Third, the unstable labor relationship has been a serious hidden trouble for the long term stability of
China. It strengthens the social polarization and cause serious social conflicts. In recent years, major
labor conflicts happen frequently. It’s often reported that labors from different parts of the country
demonstrate on the street, go on strike and appeal to higher authorities. It shows that the social conflicts
caused by labor relationship have gone from underground to open and need to attract serious attention.
Labor relationship is related to millions of common labor’s ultimate benefits, and an important part of
the socialistic relations of production. Every measure taken regarding labor relationship must reflect the
ultimate benefits of common labors with the majority of population. The economic development and
efficiency enhancement in modern world can’t be achieved by sacrificing common labor’s benefits,
dignity and human rights. Otherwise people will pay high social cost and even destroy all achievement
of the social and economic development. This is an important hint from the history of the western
modernization process.
4 Construct stable labor relationship and promote long term social harmony
In our opinion, the most major and fundamental institutional change in recent 20 years in China is the
change of labor relationship. We should fully affirm the original reform intention for breaking the ‘iron
rice bowl’ and ‘life employment’ and its historical value to improve the efficiency and profits in the
whole society. It will be one of our important guiding principles in the future. However, after 20 years
of reform, the new labor relationship has been established, the situation is quite different from 1980s.
One thing is for sure, ‘iron rice bowl’ and ‘life employment’ are no longer existing in common economic
organizations. If this is the true case, then both the guiding principles and basic measures on China’s
labor relationship reform need to be adjusted. It’s especially important considering the increasing
problems shown in recent years. Recently the central committee set the object of establishing socialistic
harmonious society, one of its fundamental contents is the harmony among different classes of the
society [7]. To our opinion, the harmony of labor relationship is very important to the harmony of the
whole society. Just like what many people have pointed out, the long term flourish and development of
the society can’t be achieved by sacrificing the benefits of common labors [8]. Currently, the frequent
troubles such as ‘mine disaster’ [9], ‘shortage of labors’ and even ‘blood factory’ have been giving us
warnings in various ways.
How to decide the basic countermeasure for future labor relationship reform? Our opinion is that the
guiding principle should be stabilizing the labor relationship (Not going back to ‘iron rice bowl’ and
‘communal pot’) and facilitating the long term social harmony in new conditions, to suit the socialistic
market economy. Related with the current situation, there are two important missions: One is handling
some historical problems and current outstanding problems, to facilitate the shift from current labor
relationship to standardized and marketized labor relationship. We need to fix the labor relationship
problems existed in the process of allocating redundant labors in public sector, and protect the weak
labor groups’ benefits and legal rights from infringement; The other is to ensure the long term peace and
harmonious development of China. We need to strengthen the system establishment and innovation in
fast pace. The most pressing thing is to establish labor relationship adjustment mechanism or new
patterns to suit the socialistic market economy. With the stable new labor relationship, we’ll reach the
ultimate goal of long term harmony.
The following specific jobs need to be done:
First, handle the labor relationship problems in the reform of state owned enterprises well, shift it toward
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marketized labor relationship. Concretely it means: 1. Insist the principle of financial compensation,
especially return the social security fund to the labors by way of financial compensation; 2. Insist
reasonable standard of financial compensation. The lowest standard is to compensate the annuities and
medical fees from the time of unemployment to the time of retirement; Insist on the principle of overall
planning, consolidated implementation and government s final responsibility. In the process of system
transform of state owned enterprises, government need to have overall planning to solve the problems of
labor relationship and employees compensation; 4. Design special policies for special industries,
special areas and special population groups; 5. Regarding the problem of employee identity in mixed
property right enterprises, especially for the enterprises in which the national stock has partial retreat,
shall we change the employees identity or shall we give them compensation? In practice it s better
that some enterprises preserve employees compensation from national assets in the process of system
transform. According to stipulations, employees can receive this compensation when the national stock
is retreating or when there is a staff reduction. [10]
Second, we need to take various measures to protect the benefits of weak labor relationship groups.
Firstly we will work more on propaganda and urge the enterprises sign labor contracts with unemployed
peasant labors, reduce the uncertainty and instability in labor relationship; Secondly we need to offer
employment help to 40, 50 unemployed staff and peasant labors[11]; Thirdly we need to establish
community services such as consulting, reporting and legal aid for weak labor relationship groups, offer
them various kinds of help urgently needed; Fourthly we will strengthen labor inspection, for example
before Jan 1st and spring festival, and solve problem when or before it happens; At last we will smash all
kinds of illegal action infringing labors benefits, and protect common labors basic human rights.
Third, the most important and fundamental thing is to start from actual situation, establish the new
system or pattern regulating the labor relationship in China and facilitate the long term social harmony
by stabilizing labor relationship. By now the opinions from different parts of the society can be
summarized as two aspects:
Firstly we should establish effective group negotiation system. In history, group negotiation is a long
time effective labor relationship regulating system in mature market economy countries, also the
primary system applied in most market economy countries. The main feature is establishing strong labor
union, and negotiating with employers on labor s working condition, social benefit and social security
through the power of the labor union. By considering the difference and similarity of both parties, press
influence to the employer and protect labors benefits. Since the system is built on the complete combat
and negotiation between two parties, it demonstrate the basic rules of market economy. Therefore, its
advantage is larger than its disadvantage. It s especially important that it s effectively applied in many
countries and should be easy to apply in China. However, the implementation of group negotiation
depends on the establishment of a strong labor union, which is not available in China yet. The
independence of labor union in China is very weak and it is far less effective than expected. In the
current condition in China, some work of the union is weakened by outside interference. How can we
expect the union will represent common labors benefits and conduct powerful group negotiation with
employers? It may needs a series of difficult reform even including the reform on political system.
Secondly we need to strengthen the construction of legal system, especially strengthen the law execution
and supervision and strengthen labor inspection and labor conflict processing system. Objectively
speaking, we did pay emphasis on protecting labor benefits by way of legislation. Just as argued by
some people, the established labor protecting law in China is even in a higher level than some developed
countries, but it has a very unefficient result. Some regulations are far from practical and in fact
infeasible. It shows that there are lots of in-depth work to be done. On the other hand, there are many
problems in the supervision and execution of labor laws and it s an important cause of the neglect and
infringement of common labor benefits. Some local governments have a strong bias toward investors
and managers while show no care to common labors especially to external and unemployed labors. They
show favoritism to investors in time of labor conflicts and ignore the regarding labor laws. It s also
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possible that some local officials collude with investors for their own benefits. All above shows that
there are lots of important and hard missions to be completed on strengthen labor law legislation and
execution.
5 Conclusion
After 20 some years of reform and opening up, the labor relationship has gone through great and deep
changes. Based on the fact that the socialistic new labor relationship has been primarily formed, a
pressing mission now and in the future is solving the historical problems and standardize certain acts
regarding labor relationship in the process of reform and change of system in enterprises. We need to
strengthen the establishment of laws and other regulations, especially strengthen the execution of the
law. We need to protect the benefits of common labors and other weak groups. We need to understand
the particularity of labor market and labor capital, protect labors in the labor market, reestablish long
term stable labor relationship in socialistic market economy, and facilitate the standardization and
perfection of labor market. Labor relationship is related with millions of common labors core benefits.
Without whole society stable and standard labor relationship, the continuous economic development and
long term social harmony will have no basic guarantee.
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Annotation
[1] In China, labor relationship refers to the social and economic relationship built in the working
process between labors and employers
[2] According to related data, a long term jobless group has been formed in China. According the spot
check from labor insurance department, 55.2% of unemployment are more than 2 years, only 15.2% are
less than half a year, the trend for long term is obvious; There are 10227 industrial accidents (525 more
than last year) from January to September 2003 in China, 11449 casualties (924 more than last year), it
is respectively 5.4% and 8.8% higher than last year; There 184 thousand industrial conflict cases heard
by different levels of labor conflict arbitration committee in 2002, 610 thousand labors were involved, it
is 19.1% and 30.2% more than last year respectively. (Chang Kai, Qiao Jian. The labor relationship and
labor policy under globalization, China workers’ publishing company, 2003: 64)
[3] News office, State department of China. The situation of labor and social security in China, white
paper. 2002, 4, 29
[4] China business, 2002,4, 24, 3rd column
[5] Wang Cheng. The status quo and countermeasure of labor relationship in the transforming period,
Enterprise culture, 2005,1:15-18
[6] As above;
[7] In recent years, the CCP central committee raised the important problem of establishing socialistic
harmonious society. Many papers and reports were delivered and the leaders of the party and the nation
emphasize this problem in many occasions.
[8] The survey team of China labor science institute. The current situation of labors in China and the
related social problems, Economic and social observation, 2004.3
[9] 2005,8,18, reference message quote Los Angels Times 2005, 8, 16, The price of coal mining, the life
of miners: China mined 35% of world’s coal while suffer 80% of world’s mine accidents casualties. The
casualty/production rate of China is 10 times of India, 30 times of South Africa, 100 times of US
[10] Guo Yue, Labor science institute, Labor and social security department. The research on the China
labor relationship in transforming period, http://www.sina.com.cn, 2005.01.07, Worker’s daily online
[11] Recently, a 54 years old unemployed worker’s saying were frequently quoted by medias in China:
The attitude toward intellectuals represents the civilization level of a people, the attitude toward
business men represents the richness of a people, and the attitude toward workers and peasants
represents the conscience of a people. Tabloid weekly, 2005.6.1, 1st column
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