Has the Chinese economy passed the Lewis turning point?

Abstract

There are a number of studies related to whether China's economy has passed through the Lewis turning point or not. However, definitive conclusions have yet to be obtained. Some studies argue that China's economy has not yet reached the Lewis turning point, while some studies claim that China's economy has crossed it already. In this study, we estimate the marginal productivity of labor in China's primary industry based on province level data and suggest a different proxy for the survival wage compared to previous studies. We discovered that China's economy has passed through the Lewis turning point around 2002–2004. A similar conclusion was also obtained by relating the substitutive relation of labor and capital inputs in China's agricultural production.

Keywords:

• Lewis turning point
• labor market
• subsistence wages
• marginal productivity

JEL classification:

• O12
• O13
• O14
• O18

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1. The two sectors can be approximated by the agricultural and industrial sectors.

2. Strictly speaking, when the subsistence wage is calculated for an open economy, net exports of agricultural products should be subtracted. However, due to the ratio of this part to the GDP of primary industry accounted for only 3% on average from 1993–2008, it is not considered here.

3. This part is based on the analysis result by Liu (2010).

4. One Mu equals to one-fifteenth of a hectare.

5. This estimation result matches Wu (2007) and Wang (2013).

6. Wang Yuwei (2013) used the average agricultural net income on the whole agricultural labors as the subsistence wage of the traditional sector. Compared with the indexes adopted by other previous studies, this index relatively fits the output level of agricultural labor and is close to the approach adopted in this paper.

7. The daily wages of short-term employed labor and the wages of rural household labor mentioned below are deflated by CPI based on the 2000 constant price.

8. According to the explanation of China agricultural products cost-benefit compilation of information (2013), the household labor wage is calculated from the per capita net income of rural households and not a real existing wage.

9. Capital input data are from China agricultural products cost-benefit compilation of information (various years), including machinery costs, animal power costs, implement material costs, and depreciation costs. Machinery costs are deflated by the simple average price index of the mechanical implements, semi-mechanical implements, and labor force. Animal power costs are deflated by the simple average price index of the fodder and labor force. Implement materials and depreciation costs　are deflated by the simple average price index of farm implements, semi-mechanical farm implements, and mechanical farm implements. All price indexes are based on the year 2000. The data sources are the China Statistical Yearbook (various year) and CEIC database.

10. http://women.jl.gov.cn/zjfl/ldjh/swszfld/t20051114_99507.htm.

11. In Japanese, ‘Chan‘ is an intimate appellation to a familiar person.

12. The calculation method for China is to divide domestic arable lands by the employed labor in a primary industry. Data source is China Statistical Yearbook (2004 version). For Japan, we use domestic arable lands divided by the labor in agriculture. Data source is Statistic Bureau in Ministry of Internal Affairs and Communications, ‘Long-term Statistic Series of Japan’. http://www.stat.go.jp/data/chouki/mokuji.htm.

13. Angus Maddison, ‘Historical Statistics of the World Economy: 1-2008 AD’, http://www.ggdc.net/maddison/maddison-project/data.htm.

14. In the off-season, the young labor force living in rural areas also goes to the town for a part-time job or some other off-farm job. They become part-time farmers.

15. For instance, in 1960, the ratio of Japan's employed persons to the total population age 15 and over is 67%. The ratio of that of men is 84% and of women is only 51%. There is no labor ratio by gender in China, but in 2003, the ratio of the employed population to the population age 15 and over is 73%, which is 6% higher than that of Japan. It is reasonable to believe the difference is at least partly due to the institutional and traditional restrictions in Japan's labor market.

Additional information

Funding

This work was partly supported by JSPS KAKENHI [grant number 24530298].

Notes on contributors

Deqiang Liu

Deqiang Liu is a professor of Graduate School of Global Environmental Studies, Graduate School of Economics of Kyoto University. His research interests are economic development and environmental problems in China. His recent publications are The Change of FDI Policy and the Efficiency of Foreign Enterprises in China, edited by Jin Du; China's FDI Policy and Japanese Invest Enterprise in China (Keiso Shobo, 2009, in Japanese), The Turning Point of Labor Market and the New Development Stage in China, edited by Yan Zhu; The Chinese Economy after the World Financial Crisis (Keiso Shobo, 2010, in Japanese).