Industry Volatility and Employment Extreme Risk Transmission: Evidence from China

Abstract

China’s socio-economic growth path aims to achieve full and sustainable employment, which requires an in-depth understanding of the linkages between employment and different industrial sectors within the economic system. The objective of this study is to examine the heterogeneous transmission effects of industry fluctuations on the distribution of employment, with special attention to the transmission effects of industry fluctuations on employment under extreme conditions. The research methodology of this paper is to systematically examine the risk spillover effects between industry sectors and employment distribution using the quantile risk spillover model. The results show that industry volatility significantly affects employment volatility in China. The impact of industry volatility is stronger under extreme conditions, both more adverse and favorable than that of under normative conditions. Among labor-intensive industries, the employment impact of skilled labor-intensive and integrated labor-intensive industries is relatively small compared to that of the relatively large impact of manual labor-intensive industries. The results suggest that traditional indicators of the spillover effect, such as the mean-based indicator, cannot accurately capture the source and real effect of risk transmission, leading to unemployment fluctuations, underscoring the need to focus on the heterogeneity of the distribution of employment fluctuations. The findings also present the evolution of the risk transmission structure of employment in China, which provides implications for policymaking on full and sustainable employment.