The Labor Supply and China Economics - Term Paper Example

The Labor Supply and China Economics Introduction China’s economy is facing a decreasing labor supply with the government formulating policies that are likely to accelerate the decline in the country’s workforce. Economic planners in this country face the task of making the necessary transitions that can help in avoiding a slump in the growth of the country’s economy. Due to the implementation of the one-child policy, the country is likely to face a severe shortage of labor in the future, which will adversely affect the economy of China. The shortage of labor supply has emboldened workers and led to the emergence of strikes, which have paralyzed the operations of major companies in China (Lu 2). This paper will discuss labor supply in China. It will highlight the concept of wages and employment in the Chinese economy and the outcomes of human resource development. Discussion Wages and Employment in the Chinese Economy The economic transitions that China has experienced in recent years are characterized by the adjustment of wage and employment by private enterprises in order to maximize profits. The government controls the wages and employment of the enterprises that are owned by the state. This is in an attempt to improve the quality of the income for the workers and to curb inflation. The government achieves this through setting a wage ceiling for each enterprise. The wages of the enterprises that are better performing are regulated strictly (Chow 53). Despite the strict regulation of the wages and employment for these enterprises in China, the firms have some influence on the wage and employment. The determination of wage and employment is like a bargaining process with the social security and labor bureau playing a huge role. In the process, the government aims to lower wage and higher employment while the enterprises aim at reaching huge profits (Chow 53). Collective Bargaining and Its Effects on the Wages and Employment Collective bargaining has been used in many economies as a means of regulating wages and employment conditions. This instrument has been used in China to address the issue of decreasing labor supply, which needs immediate attention. It has become the most important source of strategies for the regulation of conditions relating to wages and employment in countries such as China. The coverage of the bargaining agreements is very high in China with the public sector witnessing the coverage of all the wage earners in all jobs. The private sector has a lower coverage of the collective agreements with this coverage varying significantly between various branches and employee categories. The corrective bargaining agreements contain comprehensive regulations for the relationship of the employment with the inclusion of aspects that are regulated in other countries through the constitution or various statutes. Trade unions are of great importance in the achievement of the collective bargaining agreements as their importance is not limited to the establishment of conditions in the employment and wage sectors but they are also important in application and supervision of law in the firms. Employees are unlikely to realize their contractual rights in the absence of support from the trade unions (Li and Zax 3). In China, the collective bargaining agreements became the main form of regulation for wages and employment in the 20th century with the first agreements offering price lists for various kinds of work. These agreements became more comprehensive later as they encompassed rules that not only included time but also work rules, work time, freedom of association and peace obligations. The collective bargaining agreements were at first concluded at the local basis, which covered limited enterprises. During this period, the collective bargaining concept had not been integrated into China’s legal system. Henceforth, individuals were not aware of the legal status and effects of such agreements (Ni, Wang and Yao 19). Macroeconomic Outcomes of Human Resource Development Human resource development has enabled firms in China to achieve better levels of performance. This is because human resource development has succeeded in improving the sources of an organization’s competitive advantages. In China, organizations have been using practices in Human Resource as an important strategy for promoting the required behavior among the employees while leveraging their skills, knowledge and abilities, which helps increase the performance and productivity of the economy. Through human resource development, which entails training and developing the skills possessed by the employees, enterprises in China have recorded increase in productivity. Companies in China spend billions of dollars annually in training and developing employees. However, this spending is often not translated into the improvement of the performance by individuals and organizations (Wei 3). Human resource development produces macro-economic effects in a variety of ways. In increasing the skills, knowledge and abilities of the employees, organizations are guaranteed of increase in productivity which in turn has positive effects on the entire economy. Human resource development also succeeds in empowering the employees to act and motivates them to perform their duties effectively (Wei 3). Components such as employee’s participation, employee selection and recruitment as well as flexible work arrangement are a part of human resource development and have been vital in the promotion of the effectiveness of organizations. In these organizations, operational efficiency has been enhanced and this has translated to improvements in the financial performance of these organizations. Human resource development efforts influence organizations’ outcomes through the development of an effective workforce, which is sufficiently committed and competent to enable an organization to achieve its goals. Efforts of employees in commitment and competence help in promoting an organization’s performance (Wei 5). Human resource development practices enhance aspects such as employee retention, productivity and market value, which are instrumental in enhancing the effectiveness of an organization. Moreover, the aforementioned human resource development practices are capable of promoting financial outcomes through the improvement of operational performance in productivity and the flexibility of the functions of an organization. Different approaches to the evolution of the labor market (Wei 10). Neoclassical Approach The neoclassical economists explain the wage differentials that exist in the markets since the primary neoclassical model for the labor market indicates that wages should be equal. These claims are based on the assumptions of profit maximization, perfect competition and the worker’s homogeneity. However, there exist clear differences between the wages of various individuals in the labor market. In order to address these differences, there exist three neo-classical arguments that explain the difference. These arguments are found in theory of equalizing differences, theory on efficiency wage and the theory on human capital. Through these theories, the neo-classical economists have been able to relax the assumptions that the basic model possesses (Chow 150). The theory of equalizing differences highlights that wage differentials that exist in the labor market are because of the inherent properties of some occupations, which require compensation for the negative traits that the job possesses or when employees are compensated with positive traits that are non-pecuniary. This theory is also known as compensatory differences and has various properties. The job’s agreeability is the property whereby according to the theory, individuals are likely to accept lower wages for their labor for a job that has preferable working conditions. In this job the individuals are being compensated in a non-pecuniary form. Analogously, individuals working in unpleasant working conditions have a higher wage according to this theory. Another property in the compensatory differences theory is the ease of learning the tasks in the particular job. Compensatory economists have over times argued that jobs, which are difficult or time consuming when learning often, pay more. Employees who invest their time in learning the tasks are compensated with higher wages for their efforts. This compensation is because there is an opportunity cost of foregoing the time spent while training (Chow 153). Differences in wages in the labor market may also be due to the property of consistency of work. In neoclassical economics, workers who face inconsistent or partial employment, such as seasonal workers in agriculture, are supposed to be paid more for their labor. This is because their wages sustain them during employment and unemployment times. This is contrary to the fact that agricultural workers are among the workers who are lowest paid in the economies that are developing (Chow 23). The probability of achieving success is another property of the neoclassical theory that seeks to explain the differences in wage among employees. Probability of success is also known as entrepreneurial compensation whereby the employees who are working in jobs that have high chances of success are paid low than the employees that take risks. The argument in this property is that if the employees were not compensated for the numerous risks they would lack incentive (Li and Zax 5). The Human capital theory explains wage differences in the labor market by indicating that the differentials are because of differing stocks of human capital, which determine the marginal productivity of an individual. This theory addresses the assorted nature of the labor market. In explaining wage differentials as emanating from the differences in productivity of the employees, the theory suggests that the pay of individuals should be based on the marginal product of their labor (Chow 52). The Efficiency wage theory is another neo-classical theory that seeks to explain wage differentials. This theory suggests that the wage differentials are because of employers seeking to reduce turnover, attract superior employees and discourage shirking. The employers aim at discouraging shirking as it leads to poor effort by the workers, which in turn reduces productivity. Imperfect supervision from employers may lead to shirking. The theory also emphasizes on the reduction of turnover since high turnover leads to an increase in costs such as additional training and recruitment (Chow 53). Institutional Approach in the Evolution of the Labor Market Institutions in the labor market are important in explaining the distribution of wages in an economy. There are three main institutions that are highlighted in the institutional approach of the labor market. Individuals is the first institution which makes decisions that concern when to become part of the labor force in the labor market, the bulk of training, education and job search to be undertaken, the type of work and the number of hours to be working. Individuals also make decisions that concern the wage, retirement and whether to join an employee association or not (Osterman 636). Firms are the second institutions in the institutional approach to the labor market dynamics. The firms are responsible for making decisions such as the number of workers to hire and the hours of work required, the types of workers to be hired in terms of their skills, the wages and benefits to pay and decisions concerning when to lay off the workers. The last institution is the government, which is responsible for formulating policies that have direct impacts for the decisions concerning labor markets that are made by the firms and the individuals. These policies include anti-discrimination and human rights laws, the standards of employment and laws that concern the minimum wage, and the decisions concerning the insurance and public pensions. In general, the institutional approach lays emphasis on the roles of the aforementioned institutions in the labor market (Osterman 642). Conclusion In summary, this paper has discussed the labor market with particular emphasis on the China’s economy. The country’s economy is facing a decline in labor supply and the government is partly responsible due to the formulation of policies such as the one-child policy. This has rendered the country unable to provide the human labor required by the many enterprises in the country. Due to this situation, the economic planners and the country’s government have to make necessary transitions, which can help the country to avoid a slump in the growth of its economy due to labor supply shortage. The concept of wage and employment has also been addressed whereby private enterprises in China have adjusted wages and employment in order to maximize profits. Works Cited Chow, Gregory C. The Chinese Economy. New Jersey: World Scientific, 1987. Print. Li, Haizheng and Jeffrey Zax. Economic Transition and the Labor Market in China. n.d. 16 July 2012. Print. Lu, Ming. Wage and Employment Regulation and Its Effects on Efficiency of China's SOEs. n.d. 16 July 2012. Print. Ni, Jinlan, Guangxin Wang and Xianguo Yao. "Impact of Minimum Wages on Employment." The Chinese Economy 44.1 (2011): 18–38. Print. Osterman, Paul. "Institutional Labor Economics, the New Personnel Economics and Internal Labor Markets: A Reconsideration." Industrial and Labor Relations Review 64.4 (2011): 635-651. Print. Wei, Li. "The Effect of Human Resources Development in Rural China." Labour and Management in Development 2.2 (2001): 1-23. Print. Read More