China's services sector pushes job growth

Reviewing China's employment data in the first three quarters, 10.97 million new jobs had been created in cities and towns, meaning that 99.7 percent of the annual target had been achieved, which slightly slipped from 11 million new jobs in the same period last year.

In general, employment in the manufacturing sector may be under pressure due to the downward economic cycle, but the overall employment situation in China remains stable. Since 2010, China's economic growth has been slowing, but it did not increase unemployment. US economist Arthur Okun propounded a theory in the 1960s that the relationship between unemployment and GDP growth rate varies by country. It means higher growth reduces unemployment, while lower growth can make more people lose jobs.

But clearly, that didn't happen in China. The contradiction between the current slowdown and the continuous improvement in the employment level is obviously not in line with the "Okun's Law". Let's look at the steady increase of new jobs in the urban areas. In theory, during an economic downturn, the unemployment rate will rise because of weaker demand and lower capacity utilization.

But the truth is, in China, instead of seeing any signs of deterioration in the level of domestic employment, the government raised the target of new employment in the urban areas from 9 million to 10 million in 2014. It increased it again to 11 million in 2017. According to 2018 economic data, 13.61 million new jobs were created in cities and towns, 100,000 more than the previous year.

Data from the Ministry of Human Resources and Social Security showed that from the fourth quarter of 2011, the supply-demand relationship in China's labor market has been reversed, and the supply could not meet the demand any longer.

According to Okun's Law, the relationship between the unemployment ratio and the GDP growth rate is this: when unemployment increases by 1 percent higher than the natural rate of unemployment, the real GDP will fall by 2 percent lower than the potential GDP, or the "output gap".

Therefore, if the potential GDP growth rate of a country does not change in the short term, the size of the output gap is directly determined by the real GDP growth rate, which also determines the employment level of the country to a large extent. However, if the potential GDP growth changes, the situation will become more complex.

Thanks to the great contribution of the vigorous services sector in the past few years, an important feature of China's economic development has been the structural reform and industrial transformation and upgrading. The driving forces of economic growth are shifting from exports and investment to consumption, along with the rising share of the services sector.

In 2013, the share of the services sector exceeded the manufacturing sector for the first time, and then exceeded 50 percent for the first time in 2015. As of the first three quarters of this year, the proportion of services had exceeded 54 percent. While the proportion of services has increased, the labor force of the whole society has also been flowing into the services sector.

From 2012 to 2018, labor in the services sector accounted for 46.3 percent of the total amount, up by 10.2 percentage points, but the proportion of labor in the secondary industry (including the industrial sector and the construction sector) decreased by 2.7 percentage points to 27.6 percent in the same period.

So, we believe that the slowdown in economic growth and the stability of the employment market in China are largely attributable to the vigorous development of the services sector in the process of economic transformation in recent years.