By Douglas J. Besharov and Karen Baehler
Let’s assume that Nobel economist Paul Krugman and others are right about China’s economy being “in big trouble” and headed for a “nasty slump.” What does this mean for the 150 million current Chinese workers who left their home villages to fill jobs in the new economy’s growth centers? When a rapidly emerging economy built on these internal migrants — aka surplus rural labor — begins to cool, what becomes of the peasants-turned-factory-workers who made the economic miracle possible?
The answer depends largely on public policy choices (past and present). China’s leaders have long understood the destabilizing effects of large-scale labor migration, which is why they institutionalized the modern hukou system of household registration in the 1950s. In post-market reform China, a hukou operates less like an internal passport than it once did, with fewer restrictions on mobility, but all Chinese still must register in the location of their birth, and access to many services is still tied to that location. Although government officials have discussed the issue and adopted minor reforms around the edges of the hukou system for some time, receipt of pensions, health care, unemployment insurance, and other basic social benefits still tends to be highly skewed in the new economy toward areas of rapid economic development and their registrants. Migrant workers and their families are typically stuck at the end of the social protection queue.
Take schooling, for example. Public education is a national entitlement for all Chinese children under age 14, but locally financed. Until recently, children of migrants were included in the budgets of their rural home districts, where they were registered but did not use services; at the same time, they were excluded from the budgets of their actual areas of residence, where they needed services but could not register. Some migrant-receiving urban districts addressed the mismatch by charging fees for migrant children to attend their schools. This practice caused severe material hardship for many migrant families and led others to use substandard schools that catered to migrant children. The Chinese government introduced new policies in 2003 that tied responsibility for education delivery to the receiving jurisdiction rather than the district of origin and forbade the imposition of differential school fees based on household registration status. The policies did not address the financing constraints of the receiving local governments, however, and did not offer fiscal relief for local and municipal jurisdictions faced with large numbers of migrant students. As a result, differences in local-provincial financing arrangements have led to substantial district-by-district differences in educational access and quality for children of migrants.
Alongside widely recognized problems like education financing, novel problems associated with labor migration are sure to emerge if and when the much-anticipated economic downturn occurs. Redundancies will probably hit migrants first. Some laid-off migrants will return to their rural home districts, where social insurance systems tend to be thin. Other laid-off migrants will stay in the cities, placing additional pressure on urban social programs. From the migrants’ perspective, it is not immediately clear which option—stay in the city or return to the countryside—is best. In keeping with the location of economic growth, greater priority has been given to developing social programs in urban areas to replace the old, pre-reform arrangements, which depended heavily on guarantees of lifetime employment and direct provision of social services by state-owned enterprises. But migrant workers have tended to fall through the cracks of these new, post-reform urban social programs. Meanwhile, rural services have only slowly improved, lagging far behind those offered by urban social programs.
From the perspective of the general welfare, public policy needs to strike a delicate balance of incentives for return migration vs. encouraging migrants to stay in cities, while also stimulating domestic consumption nationwide. Return migration, for example, ought to serve the dual goals of taking pressure off urban social systems and transferring skills, knowledge, and human resources to the countryside. Policy might steer return migration toward rural areas that demonstrate better prospects for future job growth. Return migrants also might be encouraged and/or assisted to pursue entrepreneurial opportunities back home. At the same time, urban enterprises will need to recall some of their laid-off workers when economic growth resumes, and that points to the value of providing reasonably generous unemployment benefits for migrants in cities alongside opportunities for up-skilling during periods of slower growth. Expanded public and private spending on pensions, unemployment benefits, health care, child care, and other benefits and services are likely to be used to stimulate domestic consumption and provide a counterweight to what many have referred to as China’s lop-sided, investment-heavy growth model. Making these benefits available everywhere and regardless of hukou could be seen as advancing both economic development and social protection goals.
China, of course, is not the first country to experience enormous economic growth driven by rural to urban migration. In many countries, the result was massive urban poverty and hardship; think of Dickensian London and America’s dangerous 19th and early 20th century slums. So far, China seems to have avoided the worst elements of these costly transitions. But the hukou system has caused hardships of its own—particularly for China’s migrant worker population—in the country’s post-market reform era. With many prominent economists predicting far slower economic growth rates in the future, policymakers must promptly address the issues facing migrant workers and their families. Will China’s leaders be able to cross this river before it floods, or will they be caught in the middle, feeling for the next stone?
Image credit: New constructed buildings at Shenzen China. © tekinturkdogan via iStockphoto.