INDUSTRIAL UPGRADE, EMPLOYMENT SHOCK, AND LAND CENTRALIZATION IN CHINA

Abstract

I. INTRODUCTION Traditional development economics considers the transfer of rural labor into the industrial sector the only way to balance the economic development in urban and rural areas. Chang (1949) mentioned that rural labor will not always stand in a static state on farms but that part of it will transfer into factories to engage in industrial production. Lewis (1954) established a dual-sector model and argued that the transfer of rural surplus labor from traditional sectors into modern industries is imperative. Later, Harris and Todaro (1970) changed the term of the industrial sector into urban sector by assuming that the former mainly exists in the cities. Since then, the dual-sector model has become a classical approach used in economic development research. A closer look at coastal China, however, shows a more complex picture than the one predicted by a simple transfer of rural labor into the urban sector. In recent years, facing international competition, coastal China made great efforts to upgrade its industries; such efforts generate an adverse employment shock on peasant workers, forcing some of them to return to the countryside. For example, according to Zheng et al. (2007), the City of Suzhou upgrades its industries by attracting foreign manufacturers who possess more advanced technology and management. Many town-village enterprises (TVEs) and some State-owned enterprises (SOEs) lost their competition to foreign enterprises. Some had to close their businesses and others moved their production to inland areas. As a result, a significant portion of previous TVE and SOE employees was laid off. Peasant workers, especially those mid-aged workers who worked in TVEs, often find themselves lacking adequate skills to find new jobs in the industrial sector that now demand less unskilled workers. Many mid-aged peasant workers have to return to their villages and become farmers again. Worse, some returned peasant workers found little land left in their home villages because of the vast amount of land converted for urbanization and industrial uses (Zheng et al. 2007). For these land-lost peasants. survival becomes a challenge. A new land conversion system, called land cooperation. seems to help peasant workers deal better with the adverse employment shock caused by China's industrial upgrading. Under the conventional land conversion system, local governments get land from peasants with one-time lump-sum compensations. which are often significantly lower than the fair market values. Once land is transferred to local governments. peasants lose both their land ownership and use rights. Under the new system. that is. the land cooperation system. peasants in the same village pool land together. invest land cooperatively into industrial and urban uses, and share returns jointly. Such land cooperation could mitigate the negative impact of employment shock because it not only allows peasants to keep their land ownership but also generates income 1-low for them. At the same time, the system could help local government centralize land because of better investment returns on land for urban and industrial uses. Generally. China's rural labor transfer includes two groups: those who migrate to other cities and those who stay in local areas. In absolute numbers, the latter group is dominant. A number of studies have examined why farmers migrate into cities and become industrial workers (e.g., Zhao 1999; Zhang and Song 2003; Lu and Song 2006). They concluded that pushing factors include loss of land and high burden of taxes and lees in the countryside and pulling factors include higher income, better opportunities. better quality of life. and better education in cities. The backflow of rural migrants has not been studied by as many researchers. Hare (1999) and Zhao (2002) are exceptions. Hare (1999) belie% ed that the urban admittance system and immature factor market are two key factors of labor backflow in China. …