Below is an excerpt from the SIEPR policy brief published online.

"As the United States and China enter a new and contentious phase of their relationship, Stanford scholars are setting and expanding research agendas to analyze China’s economic development and its impact on the world. The newly launched Stanford Center on China’s Economy and Institutions (SCCEI, pronounced “sky”) was formed by the Stanford Institute for Economic Policy Research (SIEPR) and the Freeman Spogli Institute for International Studies (FSI) to support their work.

The goal of SCCEI and its affiliated faculty is to provide a dispassionate, fact-based architecture that can help policymakers, business leaders and the general public navigate the fraught relationship between the U.S. and China.

This policy brief outlines the scholarship already underway by some of SCCEI’s affiliates. It includes a range of research on the world’s most populous country: education and wage disparities; workforce transformation; emissions trading; China’s one-child policy; and the effect that racism against Chinese students in America has upon their views about authoritarian rule. As the center matures, research agendas will expand and focus on trade, global supply chains, technology, intellectual property rights, worker productivity, and a range of developing issues affecting the connection between Washington, D.C., and Beijing and the rest of the world."

Read the Full Policy Brief

One of the defining features of China’s economy over the two decades between 1995 and 2015 was the persistent rise of wages for workers and professionals in nearly every segment of the economy—with wage rates for labor-intensive jobs in manufacturing, construction, and the informal service sector rising the fastest. Recently, however, the economic environment in China has begun to change, including changes in both employment and wages. We identify recent employment/wage trends throughout China’s economy and postulate the sources of these trends as well as possible future consequences if they continue. We use official, nationally aggregated data to examine employment and wages in multiple sectors and industries. Our findings indicate that China may have entered a new phase of economic development in the mid-2010s. According to the data, in recent years, wage growth has begun to polarize: Rising for professionals employed in formal skill-intensive industries; and falling for workers in the informal labor-intensive service sector. We attribute this increase in skill-intensive wages to an increase in demand for skill-intensive employment, due to the emergence of a large middle class in China, for whom the demand for high technology, finance, banking, health, and higher education industries is increasing while, at least in the recent short term, the supply of experienced, high-skilled professionals has not kept up. The employment/wage trend in the informal (low-wage) service sector, however, is following a different pattern. While there is a rising demand for services in China’s economy, the growth, due to a number of factors (e.g., large shares of GDP targeted by policymakers to investment; high rates of savings by consumers), is relatively slow. In contrast, due to a number of economic forces, including globalization and automation, the supply of labor into the service sector of the informal economy is being fueled by the flow of labor out of manufacturing and construction (two industries that that have experienced employment declines since 2013). These supply and demand trends, in turn, are leading to the fall in the growth rate of wages in the informal service sector. We conclude by discussing the possible longer-term consequences of these emerging polarization trends based on an examination of recent experience with wage polarization occurring in both middle- and high-income countries, as well as its consequences. We also present policy recommendations for greater investment in education and human capital, as well as for the development of a more comprehensive set of social safety nets for different segments of China’s population.

In late January 2020, China’s government initiated its first aggressive measures to combat COVID-19 by forbidding individuals from leaving their homes, radically limiting public transportation, cancelling or postponing large public events, and closing schools across the country. The rollout of these measures coincided with China’s Lunar New Year holiday, during which more than 280 million people had returned from their places of work to their home villages in rural areas. The disease control policies remained in place until late February and early March, when they were gradually loosened to allow for more free movement of people. Among those that were allowed to move again were the hundreds of millions of migrant workers who originally (before the COVID-19 outbreak) had expected to return to China’s urban and industrial centers to continue working in the nation’s factories, construction sites and service sector. 

Book Synopsis:

As the glittering skyline in Shanghai seemingly attests, China has quickly transformed itself from a place of stark poverty into a modern, urban, technologically savvy economic powerhouse. But as Scott Rozelle and Natalie Hell show in Invisible China, the truth is much more complicated and might be a serious cause for concern.

China’s growth has relied heavily on unskilled labor. Most of the workers who have fueled the country’s rise come from rural villages and have never been to high school. While this national growth strategy has been effective for three decades, the unskilled wage rate is finally rising, inducing companies inside China to automate at an unprecedented rate and triggering an exodus of companies seeking cheaper labor in other countries. Ten years ago, almost every product for sale in an American Walmart was made in China. Today, that is no longer the case. With the changing demand for labor, China seems to have no good back-up plan. For all of its investment in physical infrastructure, for decades China failed to invest enough in its people. Recent progress may come too late. Drawing on extensive surveys on the ground in China, Rozelle and Hell reveal that while China may be the second-largest economy in the world, its labor force has one of the lowest levels of education of any comparable country. Over half of China’s population—as well as a vast majority of its children—are from rural areas. Their low levels of basic education may leave many unable to find work in the formal workplace as China’s economy changes and manufacturing jobs move elsewhere.

In Invisible China, Rozelle and Hell speak not only to an urgent humanitarian concern but also a potential economic crisis that could upend economies and foreign relations around the globe. If too many are left structurally unemployable, the implications both inside and outside of China could be serious. Understanding the situation in China today is essential if we are to avoid a potential crisis of international proportions. This book is an urgent and timely call to action that should be read by economists, policymakers, the business community, and general readers alike.

Meet the Authors:

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Background:
Empirical evidence suggests that the uptake of maternal and child health (MCH) services is still low in poor rural areas of China. There is concern that this low uptake may detrimentally affect child health outcomes. Previous studies have not yet identified the exact nature of the impact that a conditional cash transfer (CCT) has on the uptake of MCH services and, ultimately, on child health outcomes. The objective of this study is to examine the relationship between CCT, uptake of MCH services, and health outcomes among children in poor rural areas of western China.

Methods:
We designated two different sets of villages and households that were used as comparisons against which outcomes of the treated households could be assessed. In 2014, we conducted a large-scale survey of 1522 households in 75 villages (including 25 treatment and 50 comparison) from nine nationally designated poverty counties in two provinces of China. In each village, 21 households were selected based on their eligibility status for the CCT program. Difference-in-difference analyses were used to assess the impact of CCT on outcomes in terms of both intention-to-treat (ITT) and average-treatment-effects-on-the-treated (ATT).

Results:
Overall, the uptake of MCH services in the sample households were low, especially in terms of postpartum care visits, early breastfeeding, exclusive breastfeeding, and physical examination of the baby. The uptake of the seven types of MCH services in the CCT treatment villages were significantly higher than that in the comparison villages. The results from both the ITT and ATT analyses showed that the CCT program had a positive, although small, impact on the uptake of MCH services and the knowledge of mothers of MCH health issues. Nonetheless, the CCT program had no noticeable effect on child health outcomes.

Conclusions:
The CCT program generated modest improvements in the uptake of MCH services and mothers’ knowledge of MCH services in poor rural areas of Western China. These improvements, however, did not translate into substantial improvements in child health outcomes for two potential reasons: poor CCT implementation and the low quality of rural health facilities.

Product reliability is a key concern for manufacturers. We examine a significant but under-recognized determinant of product reliability: the rate of workers quitting from the product's assembly line, or its worker turnover. While modern manufacturers make extensive efforts to control defects and assure quality worksmanship, some quality variation in the manufactured units may be revealed only after they have been used repeatedly. If this is the case, then the disruptiveness of high turnover may directly lead to product reliability issues. To evaluate this possibility, our study collects four post-production years of field failure data covering nearly fifty million sold units of a premium mobile consumer electronics product. Each device is traced back to the assembly line and week in which it was produced, which allows us to link product reliability to production conditions including assembly lines' worker turnover, workloads, firm learning, and the quality of components. Significant effects manifest in two main ways: (1) In the high-turnover weeks immediately following paydays, eventual field failures are surprisingly 10.2% more common than for devices produced in the lowest-turnover weeks immediately before paydays. Using post-payday as an instrumental variable, we estimate that field failure incidence grows by 0.74-0.79% per 1 percentage increase in weekly turnover. (2) Even in other weeks, assembly lines experiencing higher turnover produce an estimated 2-3% more field failures. We demonstrate that staffing and retaining a stable factory workforce critically underlies product reliability and show the value of connected field data in informing manufacturing operations.

Keywords: Data-driven workforce planning, Empirical operations management, Employee turnover, People