Academic journal article The Journal of Social, Political, and Economic Studies

Chinese Regional Unemployment: Neighborhood and Spillover Effects

Academic journal article The Journal of Social, Political, and Economic Studies

Chinese Regional Unemployment: Neighborhood and Spillover Effects

Article excerpt

Many studies of regional unemployment have found a significant neighborhood and spillover effect across regions within a country, but few papers have focused on how these factors relate to the Chinese regional labor market. In this paper we analyze the Chinese labor market and find that, besides the macro-environment and spatial effects that are commonly observed in the literature, regional institutional variables have had a significant impact on Chinese unemployment. As such, neighborhood and spillover effects are described in terms of their effect on Chinese regional unemployment.

Key Words: Spatial effect; Neighborhood effect; Chinese unemployment; Chinese regional institutional variables; Chinese regional imbalance.

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Studies on regional unemployment are becoming increasingly important since the regional unemployment situation may vary considerably in different parts of a country and the interaction of the regional unemployment differentials will become inevitable. In fact, relevant statistics show that it is not uncommon for the unemployment rate in one region within a country to be very different from the rates in other regions. For instance, it was reported that the regional unemployment rate differential in Austria was 15% in 1991 (Bandinger and Url, 2002). In the same year, the differentials reported in the U.K., Germany and Italy were 10%, 15% and 20%, respectively. Lopez-Bazo, Baaio and Artis (2002) reported that the gap could have been as wide as 30% in Spain in 1997. As such, policies need to deal with the regional unemployment rates within a country. Elhorst (2000) pointed out that the differentials in regional unemployment rates can be regarded as a mirror that can reflect the differentials in regional productivity and it is thus recognized that more balanced growth among regions is the key toward the sustainable development of the country as a whole. Other studies such as Molho (1995), Taylor and Bradley (1997), Bandinger and Url (2002) and Murphy and Payne (2003) focus on the differentials among administrative districts or geographic locations, or between urban and rural areas.

In regional addition, Bronars and Jansen (1987) and Molho (1995) pointed out that when studying the unemployment problem one should take into account the spatial effect across regions, since the unemployment rate in one region can affect the unemployment rate of other regions that are some distance away. Lopez-Bazo (2002) argued that the spatial distribution of the unemployment was far from random and that the unemployment in one region may also be affected by the conditions surrounding the unemployment situation in its neighboring regions in Europe. The unemployment rate in one region will surely be affected by the unemployment as well as by the employment growth situations in neighboring regions.

Although the problem of regional unemployment has been studied intensively in Europe and the US, relevant studies of the Chinese labor market are hard to find. However, studies of the regional unemployment problem in China are especially important for three reasons. First of all, as the economy in China expanded rapidly after the 1980s, internal transportation and communications improved significantly, which substantially cut the costs of crossregion job-hopping. Secondly, the permanent residence household registration system which limits the mobility of workers has weakened since the mid-1990s1 so that labor can migrate more freely across regions to take advantage of job opportunities, and this is increasing Chinese regional unemployment imbalance. Thirdly, as shown in Table 1, while the gap in Chinese regional unemployment rates declined from 7.0% in 1995 to around 4% in 2000, since then it widened to more than 5% in the mid 2000s. Balanced regional development has become a major policy goal of the Chinese and the 'Development of the Great North and West Regions' is one of the most important development plans in recent years. …

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