Abstract
China's rapid growth in the reform era has been built around the availability of large amounts of migration from the countryside to the industrial cities, associated with only small increases in real wages. This pattern of growth has generated high savings, investment, rates of output growth, external payments imbalances, and high and growing inequality in the distribution of income. Slow and soon negative population and work force growth, rapid increase in modern sector demand for labor from an ever-higher base, and rapidly increasing investment in education per school-age person have absorbed most or all of the ‘surplus’ labor from the countryside, and rapid urban demand for labor is now associated with large increases in real wages in town and village. This paper explores analytically the effects of the exhaustion of underemployed labor in the countryside on these economic variables, and on the structure of trade and industry. It suggests some approaches to policy that can make this a favorable time for growth with equity in China.
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