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Special> G20 London Summit> Expert's View
UPDATED: March 14, 2009 NO. 11 MAR. 19, 2009
OBSERVER: Re-employment Is Crucial

The U.S.-led global financial turmoil is weighing down China's real economy, which has relied heavily on exports of labor-intensive products for growth. China's employment suffers when the world economy succumbs to a recession. A large number of migrant workers in southeastern coastal areas are returning home because of factory closures and production suspension. Du Yang, a labor expert at the Institute of Population and Labor Economics under the Chinese Academy of Social Sciences, published an article in China Finance that argued boosting employment, especially in rural areas, should be the primary goal of economic recovery. Edited excerpts follow:

JOB HUNTING: The government of Yushu County in Jilin Province holds a job fair for returning migrant workers on March 10 (SHAO SHOUZHI)

Both central and local governments have made a series of policies to stimulate economic growth amid the global economic downturn. But those policies do not offer detailed measures to expand employment. In my opinion, an economic stimulus package that does not take into consideration job creation cannot root out the negative influence imposed by the financial crisis.

As China merges into economic globalization, any outside blow will cause sharp fluctuations in the Chinese economy, which can also be reflected in the labor market.

The 1997 Asian financial storm, a smaller version of this round of financial crisis, resulted in deteriorating economic growth and rising job losses. The Chinese Government at that time adopted active employment policies while in the meantime perfected the urban social security system.

The current financial turmoil has engulfed the Chinese labor market in the same predicament. Worse still, the crisis originated in developed countries, which absorb most of the cheap "made-in-China" products, hence taking a toll on labor-intensive Chinese producers.

However, this time, instead of urban employees, migrant workers who have relocated to the southeastern coastal regions have suffered the most from the destructive financial crisis. They not only have lost their low-paying jobs, but also are not covered by the social security network, adding uncertainty to social stability.

Unemployment imposes direct negative impacts on people's livelihoods, giving rise to social instability if a huge number of people cannot make ends meet because of job losses.

As a result, job growth should be at the top of the macro-control agenda.

In the government stimulus plans, more money seems to be allocated to infrastructure construction and large conglomerates. Those are useful to boost investment but will not effectively increase jobs or expand consumption.

To achieve an economic recovery with job growth, more stimulus measures should be granted to small and medium-sized enterprises (SMEs), which are important absorbers of excessive labor in many economies.

More financial support should be given to SMEs to create a better development environment for them such as relieving their tax burden and increasing credit support if they are beset by financial problems.

Perfecting social security

To better survive the financial turbulence, we should combine active job expansion with optimized social security.

Last December, the Central Economic Work Conference proposed to "implement a proactive employment policy," which was right in time to tackle unemployment. A decade ago, we successfully weathered the Asian financial storm by actively expanding employment. This time, employment expansion must focus on the group that has been hit the hardest by the crisis-migrant workers.

As I mentioned above, migrant workers are suffering the most from the economic recession. In recent years, more people have chosen to work on flexible schedules. According to our research, two thirds of migrant workers-about 90 million-are seasonal labors, whose employment status is hard to track given the current statistical system. Therefore, their job losses are most likely to be underestimated.

Not many migrant workers are covered under the social security net. Because most of them are hired as temporary workers, employers rarely take responsibility for their unemployment benefits. As a result, migrant workers are confronted with arduous living conditions once employment opportunities are not available for a very long period of time.

The mobility of migrant workers adds pressure to the implantation of the government's job expansion plans. At present, local governments do not include migrant workers in their employment expansion targets. The Central Government should track down migrant workers and make proper deployment of their reemployment.

To achieve a real economic revival with sound job growth, the government should learn from past experiences and minimize the impact of the financial crisis on the job market.

First of all, social security coverage must be broadened. The urban and rural social security system should be unified. International practices have proved that a major economic recession tends to be a crucial time to expand social security coverage and improve security levels.

When coping with the 1997 Asian financial storm, China had in the meantime built up a security system covering urban areas. Considering that migrant workers bear the brunt of unemployment, the government should extend its current urban social security network to rural areas, which would help lay a framework for a future social security system and coordinate urban and rural development.

Second, more breakthroughs are expected to take place in the fields of education, health care and old age protection, which are great concerns of the people. Once citizens are relieved of those burdens, they will be more willing to buy stuff. This will create a win-win scenario stimulating economic development at present and benefiting social security and public service in the long run. Consumption by the low-income group is likely to surge on sound social security. Moreover, if more of the central budget is spent on citizens' education, there will be more expenses and funds that can be redirected to consumption.

Third, public finance is required to shoulder a larger responsibility in supporting social security network expansion. In recent years, the labor market has been standardized, which has in effect added to enterprises' labor costs. Labor-intensive enterprises have since been heavily burdened by excessive labor costs. Judging from the enterprises' deteriorating performance, concerned government departments took a series of actions to help them by postponing their social insurance payments and incremental increases in the minimum wage. Those measures have exerted a positive influence on company performance at a time of economic downturn.

Therefore, if more public finance can be directed to social security, the enterprises' social security expenses will be reduced accordingly. In this way, if the same supportive measures can be maintained for a longer period, the conditions for enterprises will improve, and their expectations, along with investors' expectations, about their future expansion will become more stable. Hence more companies will be able to survive the financial turmoil, offering a healthier source of tax for the government. Boosting employment will ultimately create a scenario that benefits all sides.

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