The jobless: Victims of China's economic
success By Michelle Chen
SHANGHAI - New pastel-colored highrise
apartments shoot upward toward the smoggy sky - the
triumphant stamp of free enterprise on a formerly drab
and forbidding industrial landscape. Within each patch
of blooming capitalism in this congested city, however,
empty shells of the socialist era remain, about to be
swallowed by the onslaught of construction, commercial
real estate and booming businesses. The grimy walls,
crumbling roofs and massive smokestacks of shut down
state factories stand as an ominous counterpoint to the
bright symbols of Shanghai's mushrooming economy.
They are the reminders of the high human price
of economic success and the portents of future human
problems: millions of laid-off workers without work and
most without prospects, known as xia gang or
"off-post" workers.
Though the technical
definition and the exact size of this group are
disputable, the term broadly refers to at least 27
million people uprooted by the closing and restructuring
of inefficient state-owned enterprises (SOEs).
The darkened, empty windows of Shanghai's
Soviet-style industry graveyards are stark reminders of
workers whose lives once revolved around these
enterprises, but have now vanished into the crevices of
a transition economy that no longer needs them. Some
find real jobs, but many more do not. Whatever their
prospects, the socialist "iron rice bowl", which once
provided lifetime job security and made initiative
unnecessary, is now empty.
The demise of the
planned economy has forced both the government and the
people to adjust to a dynamic labor market. The process
has been one of complex trial and error, as both workers
and policymakers have struggled, often chaotically,
toward a durable solution with new jobs, new forms of
social security and a new concept of the urban working
class.
China underestimates jobless rate at
4.2 percent The Chinese government claims its
official unemployment rate is 4.2 percent - a modest
admission considering that at one time it boasted
virtually zero unemployment. In 1978, however at the
beginning of the economic Reform Era, China finally
began to acknowledge the problem of unemployment. Now it
vows to keep the rate under 4.7 percent and to create 9
million jobs this year. According to the Bureau of
Statistics, in 2002 the total urban workforce was 247.8
million, out of a national labor force of 737 million.
The 4.2 percent figure is misleading, however,
as it only counts those officially registered as
unemployed by SOEs and it does not count many because of
technicalities. The calculations exclude xia gang
workers, along with rural laborers, migrants seeking
work in cities, among others (see Who
are the unemployed?).
Not counting the
surplus rural labor force of 94 million, the World Bank
estimates unemployment at 10 percent nationwide (of
247.8 million), or nearly 25 million. It is higher in
some places, such as Liaoning province with the highest
unemployment rate of 17.6 percent. (The Bank report was released last
year.)
Another 20 million workers have
given up trying to find employment and dropped out of
the labor force, according to the World Bank study, and
if they were counted, the urban unemployment rate would
double.
Even relatively prosperous cities such
as Shanghai, with a population of 16.7 million, suffer
from massive layoffs. Its once-flourishing textile
industry shed 44 percent of its workforce in the late
1990s, pushing more than 400,000 skilled laborers out of
jobs they thought they would never lose. Over the past
year, the Shanghai municipal government admitted a
daunting employment rate of about 4.8 percent, far
higher than the national underestimation of 4.2 percent.
This rise in unemployment occurred despite the reported
addition of more than 300,000 jobs. The World Bank
estimates Shanhai's real unemployment rate at 11.99
percent.
Facing economic insecurity, social
displacement Since the 1990s, inefficient
state-owned companies and factories, a drain on the
market economy, have been shut down in huge numbers,
plunging millions of laid-off workers into economic
turmoil after decades of relative security. They must
grapple with inflation, an unraveling social safety net,
and stiffening job competition due to vast capital and
population flows between rural and urban areas.
The xia gang workers exist in economic
limbo. They are somewhere between employment and
registered unemployment, without real work but still
receiving limited benefits from reemployment centers
funded jointly by public funds and state employers.
Among ordinary Chinese, the term xia gang
encompasses anyone who has been squeezed out of an SOE
job.
The desperation of xia gang workers
revealed itself in 2001 and 2002, when thousands of
demonstrators took to the streets in "rust belt"
industrial bastions such as Liaoning province, where
almost 12 percent of the workforce was laid off in the
late 1990s. The protests were swiftly crushed by
authorities who feared potential massive unrest arising
from unemployment caused by economic restructuring.
Provincial governments haphazardly are rushing
to integrate workers into an emerging national
unemployment welfare system, shifting them out of
stopgap re-employment centers at state-owned factories,
which for many years have doled out trifling
unemployment "insurance" payments - and often racked up
huge debts due to their own inefficiency.
Urban workers: A disappearing
act State-owned enterprises, in a race for
survival to keep up with the transitioning economy and
improve efficiency, continue to push workers off the
payrolls. They encourage employees to withdraw from the
workforce, either through early retirement or a
semi-legal process known as "buying up working years" -
lump-sum severance pay in exchange for leaving one's
post.
As local governments reform their
unemployment-insurance systems, different provinces
follow different timetables for removing xia gang
workers from SOE payrolls with a combination of meager
payments and limited employment assistance programs.
To supplement the inadequate aid provided by the
state, many laid-off workers have taken jobs in the
informal sector, but do not report the income and
continue to receive benefits from their old work units
or unemployment insurance.
"Speaking only in
terms of statistics," said Lu Ming, an economics
professor at Shanghai's Fudan University, "you can say
that the problem is not very serious, but you can also
say that it is very serious." He estimates that about 60
percent of the millions of so-called unemployed
participate in China's underground or "hidden" economy,
which may be a major reason outbursts of labor unrest,
such as those in northern industrial centers, have been
relatively sporadic.
In general, however,
unemployment rates are swelling because the government's
recent efforts to integrate xia gang workers into
a new basic unemployment-benefits system has decreased
the xia gang rate while expanding the category of
unemployed. Boldly - and somewhat disingenuously - the
Ministry of Labor and Social Security has announced
plans to "solve the problem of xia gang by 2005".
Earlier, in 2002, vice minister of labor and social
security Zhang Xiaojian had proclaimed that in Shanghai
"there are no laid-off workers any more, and the
re-employment centers have been shut down". This is,
however, largely a matter of semantics. Having been
"defined away" on paper, xia gang workers may
simply vanish into the nebulous ranks of the urban
unemployed.
Many refuse to
vanish Those who have struggled personally with
unemployment provide a more desperate picture than even
the most liberal statistical estimates. Jiang Meng
Chang, a middle-aged Shanghai native, recalls that in
recent years collapsing state factories here resorted to
providing severance pay in products; a last paycheck
might be in steel basins if that's what the factory
produced.
"The more a society progresses, the
greater technological progress, the greater the xia
gang problem," Jiang said with the gravity of a
survivor of economic "readjustment". He was a driver for
a state-owned transportation company, but now runs a
curtain shop with his wife.
The central
government has acknowledged the problem and taken steps
toward a remedy, notably a pledge in 2002 to establish
three levels of protection for laid-off workers:
First, temporary income support for freshly laid-off
workers.
Second, unemployment insurance for laid-off workers
who enter the official unemployment category.
Third, a Minimum Living Standard Guarantee for those
who cannot find adequate re-employment. Coverage has
been extended to urban private as well as public
enterprises.
Although on paper well over 100
million people are covered by the new
unemployment-insurance system, the implementation is
uneven and inadequate. Only 40 percent of eligible
laid-off state workers have participated nationwide and
only one in five receives benefits.
While the
benefit period - as long as two years - depends on
length of employment for an SOE, the amount is not
directly based on earnings. Provincial governments have
the discretion to set benefit levels for unemployment
insurance so that it is just above the minimum living
standard but lower than minimum wage - a tactic meant to
provide incentive for finding work.
To ensure
that there is actual work to be found, some municipal
governments, such as Shanghai's, have stepped up job
training and provided tax breaks for businesses started
by xia gang workers. The government also hopes
that accession to the World Trade Organization (WTO) and
the anticipated influx of foreign direct investment will
salve the wounds of socialism's decline. But in recent
years, the correlation between unemployment rates and
economic growth has declined to a mere 0.10 percent. And
it is difficult to predict whether the temporary
benefits given to xia gang workers re-entering
the workforce will be sustainable in a more competitive
economy, especially when China fully opens up to more
foreign investment in 2006 as required by WTO
membership.
Won't stoop low, can't reach
high Critics say China's policymakers avoid
confronting fundamental problems endemic to the nation's
economic transition. One of these is a general lack of
morale and flexibility among workers. Some former
factory workers, whose jobs were once the most coveted,
look down upon service jobs such as custodial work,
which are seen as fit only for "lowly" migrant workers
from the countryside.
The Shanghai Labor and
Social Security Bureau was recently flooded with job
applications for managerial and administrative position,
but virtually none for entry-level service jobs. Since
many xia gang workers are underqualified for
higher-wage jobs yet unwilling to take low-paying
service jobs, they are stuck in an occupational vacuum,
a phenomenon the Chinese describe as di bu lai, gao
bu qu or "won't stoop low, can't reach high".
For former state workers, too many years of
living off the bottomless rice bowl have done
irreparable damage. "There are a lot of lazy people in
Shanghai," remarked Jiang, sipping tea in his small
highrise apartment in Shanghai's Baoshan District, which
he purchased with a state subsidy inherited from his
mother-in-law's work unit.
According to Jiang,
many laid-off Shanghainese are not only unable to
compete in the job market, but they are also unwilling
to subject themselves to hard labor. Among xia
gang workers, he said, "there is one type that looks
down upon this kind of work. And there are those who
just can't deal with the bitterness of this kind of
work." Both types would rather leave the jobs that
require one to "eat bitter" to migrants, who pick up
much of the city's slack in low-wage areas. "In terms of
dealing with any kind of hardship, compared to migrants,
there's a huge gap," he said.
Jiang himself,
though proud that he can now earn a living through his
own small business, had a similar experience when he
first entered the private sector as a chauffeur, after
being a cab driver for a state-owned company for several
years. "Whatever my boss wanted me to do, I had to do.
It was like he paid 100 kuai (about US$12) and I was
sold to him ... No matter how poor I was, I still
wouldn't want to be his slave. Why would I sell myself
to him? Why would I want to take orders from him?"
Striking out on their own Jiang
finally started a curtain-making shop with his wife, who
was squeezed out of her job at a state-owned metalware
factory. Those without the resources or know-how to be
their own boss can only rely for a short time on the
meager amounts doled out to the unemployed. Jiang said
disdainfully, "They don't have any drive ... no sense of
responsibility at all."
But it is difficult to
assign blame for lack of motivation among laid-off
workers. The xia gang generation emerged from the
chaos of the Cultural Revolution and was plopped into
minimally skilled factory labor in gargantuan
Soviet-style factories. Some observers ask whether these
people can reasonably be expected to upgrade their
skills and change their mentality to adapt to the
structural changes of the Chinese economy, even as their
old work units gather the dust kicked up on China's new
capitalist road.
The inability of many xia
gang workers to adapt to the market economy stems
from another systemic issue: the built-in rigidity of an
over-regulated unemployment program.
Ran Tao, an
Oxford University economist who has worked with the
International Monetary Fund (IMF) to research China's
labor market, says new government policies are but a
tiny improvement on an outmoded unemployment/welfare
system. "I think what they do best among all is to
provide the social welfare function ... As to job
training, I doubt their impacts, since these
government-funded agencies are usually very ineffective.
Not only do they lack the understanding of and the
capacity to provide what markets really need, but also
they have no incentive to increase laid-off workers
skills and competence in job markets."
A recent
study of training programs in Wuhan in Hubei province
and Shenyang in Liaoning province indicates that
training programs are only marginally effective in
helping people find new jobs, and that they do not
increase the earnings of the participants.
Rigorous analysis, evaluation
lacking According to Lu Ming, economics
professor at Fudan University here, "If you just look at
the policy ... you'll see that whatever America is
doing, whatever Europe is doing, Shanghai is also
doing." But the actual effectiveness of the programs is
anyone's guess, because the government has not adopted
scientific methods of analyzing the results of policies.
Thorough, objective policy evaluations based on
econometrics, widely used in the West, would help give a
clearer interpretation of the raw data, such as
re-employment rates, which may be skewed by individual
workers' backgrounds and qualifications, say Lu and
other economists.
"I've explained this problem
to the Labor Ministry many times," said Lu, whose
research group provides the Shanghai government with
policy recommendations. "I told them, 'You have to do a
policy evaluation,' but you know, the Chinese government
just doesn't attach a lot of importance to this matter.
They don't understand." Therefore, if you ask officials,
they'll throw the numbers at you, but "the logic they
use is too simple".
The solution might grow out
of the problem itself, if the government were to take a
more systemic approach to reforming the job market. Both
Lu Ming and Ran Tao, the Oxford economist, propose a
"less is more" approach to government
unemployment-insurance spending. Lu theorizes that by
reducing funding for less effective policies, such as
outmoded training programs and employment agencies that
would be better run by private companies, the state
could pump the demand for labor by streamlining the
costs of social welfare coverage for employers. Ran
argues that careful deregulation, rather than short-term
preferential policies - such as tax breaks and loans for
start-up businesses that will expire within a few years
- will create more sustainable opportunities for the
unemployed.
On a grassroots level, Lu says,
local governments should reorient labor markets and
practices not only to create jobs, but also to provide
the resources needed for the unemployed to become
productive members of a market economy.
Makeshift jobs could make the problem
worse In Ran's view, the policies specifically
aimed at occupying xia gang workers could
actually increase the long-term burden of state-owned
enterprise unemployment programs, since make-work is not
a market-oriented approach and might hamper development.
For instance, some fear that xia gang workers
might be pushed into new job openings at the expense of
surplus migrant workers who also seek work in the
cities.
Ran believes that a flexible policy that
integrates deregulation and a national
unemployment-insurance system is key if China wants to
maintain its economic growth. "After all," he said,
"what China needs to establish is an integrated national
labor market instead of a labor market for local
residents including laid-off workers."
Talking
to working-class urban Chinese on the street reveals
that despite policies designed to help the unemployed,
self-reliance is the name of the game. Jiang, former car
driver-turned entrepreneur, equates enlisting government
help with over-dependence on handouts: "If I wanted the
government's money, I could take it, too. But I just
don't want it ... I depend on myself."
Reflecting the fear of government interference
shared by many of former xia gang entrepreneurs,
he wants the state just to let him go about his
business. "I don't think about any more help the
government could provide. And on the other hand, if you
demand more, they don't listen to you anyway," he said.
Workers themselves may prove to be a valuable
resource for government programs: training programs that
are partially or fully funded by workers tend to be more
effective, probably because the trainees feel invested
in their training.
The march to the
market Should the state then let
laissez-faire govern the
unemployment/social-welfare system? Clearly, the
enormous population and rising unemployment indicate
that safeguards are still necessary as the economy
charges full force into a global economy. One issue that
the country will face in coming years is what kind of
political or social apparatus will replace the
inefficient bureaucracy. One possible remedy, say more
market-oriented critics, is to devolve power to the
community level and let local governments cooperate with
local enterprises and organizations to strengthen the
labor market.
The government could seize this
moment of high unemployment as an opportunity to
"marketize" a segment of the economy that is not easily
commodified or mass-produced: the urban labor force. The
challenge, as always, is implementing the ideas that
could revitalize the urban workforce. Some examples:
More comprehensive training would prepare workers,
even those who were laid off at an advanced age and are
deemed "redundant", for a free-market society. Programs
could go beyond teaching job skills and educate people
about their responsibilities and opportunities as agents
in the developing economy. Education could include how
to negotiate the market as a consumer and how to handle
household finances. Community training programs could be
expanded to increase awareness of business law (complex
and vague legislation in China) as well as general local
laws. Such an "active" re-employment policy would help
ease the tension between increasing economic
competitiveness and providing for the basic welfare of
the unemployed.
Community-based institutions could be expanded to
revitalize the local economy according to local needs -
an approach yet to be tested. Long-term community
institutions such as local credit unions, which would
operate independent of government control, would provide
a more sustainable base of capital for aspiring business
owners.
Programs could be linked with private enterprise,
developing entrepreneurial skills and civic
responsibility among the unemployed, easing the pressure
on the government to create welfare job openings in the
service sector. Already, small and medium-sized private
business accounts for about 80 percent of new jobs as
increasing numbers of both urban and rural Chinese carve
out niches for themselves in the developing economy.
The role of the informal sector - non-contract
employment outside the official employment market -
could be truly acknowledged and utilized. This would
enable researchers and the Labor Ministry to grasp more
fully how their policies are affecting workers on the
ground.
The budding but underutilized non-profit sector
could be developed. Non-governmental organization work
is currently concentrated in rural poverty reduction,
but the state could further expand the public service
sector to provide urban service jobs that, rather than
connoting subservience, represent community development
and collective progress. One potential program could be
the establishment of community development corporations
that engage local people in the administration of
businesses, schools and real estate. In the 1980s, a
similar hands-off policy vastly improved the quality of
life in rural regions by giving villages and townships
the autonomy to develop their own industries and
enterprises.
Although many Chinese cities have
not yet reached the level of economic development that
forms the foundation for this type of civic engagement,
the policies that strengthen community independence
would be likely to foster sustainable economic
opportunity. The government on all levels could promote
economic advancement while controlling the widening
wealth gap by shaping a new labor force that complements
urban Chinese society's unprecedented structural
changes.
This concept of community engagement
and empowerment is not lost among xia gang
workers and entrepreneurs like Jiang. Reflecting on his
own search for opportunity beyond the state payroll, he
recalled, "After leaving the big rice bowl, you had to
set off on your own and challenge yourself." In the end,
the fate of the urban unemployed is linked to the drive
for reform: "It's a matter of desire to move forward.
Problems with individuals, problems facing the city,
problems facing the country - it all comes down to the
drive for progress."
Michelle Chen is
an American Fulbright researcher based in Shanghai.
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