The Reserve Army of Labor in China's Economy, 1991–2015

By Xie, Fusheng; Kuang, Xiaolu et al. | Monthly Review, September 2018 | Go to article overview

The Reserve Army of Labor in China's Economy, 1991–2015


Xie, Fusheng, Kuang, Xiaolu, Li, Zhi, Monthly Review


The market-oriented reforms and opening-up policies introduced in China in the early 1980s marked the beginning of the country's "Great Transformation." The planned economy, portrayed as a rigid and inefficient system, was destroyed and replaced by market coordination. The ruthless marketization process not only privatized countless state-owned enterprises, but also fundamentally reshaped employment relations, replacing the old relation characterized by life-long employment and fixed wages with one based on markets and temporary contracts. By the late 1990s, when China was fully integrated into the world economy as a semi-peripheral country, an immense pool of fully or semi-proletarianized cheap labor emerged, ready for exploitation in the capitalist world system.

These cheap laborers are the primary force behind China's economic expansion. However, after decades of rapid growth, labor shortages have become a pressing issue. The working-age population (WAP) continues to decline in both absolute numbers and as a share of the country's total population.1 There are constant complaints about "shortages of peasant workers" concomitant with increasing wages in southeastern coastal regions, and manufacturing operations are fleeing the country for lowerwage countries.2 But has China really entered a new era of labor shortage?

Recent scholarship on this question is mainly based on the demographic dividend theory, which emphasizes the positive effect of the share of working-age population on economic growth, and the Lewis turningpoint theory, which focuses on the transfer of surplus agricultural labor in the industrialization process. As a result, the discussion has been confined to the question of whether demographic change has made the demographic dividend disappear and whether the transfer of labor has ended (the arrival of the Lewis turning point).3 However, these debates fail to consider two important problems. First, there is no concern for the internal dynamics of the capital accumulation process, in which surplus population is produced by technological evolution. Second, evaluations of labor shortage should be based on whether labor is "relatively" short for the capital accumulation process, not in absolute terms. Karl Marx's theory of the reserve army of labor (RAL) addresses these problems and is better suited for discussions of the labor shortage problem in China.

In this article, based on methods used by other Marxian scholars to measure the RAL, we combine macroeconomic statistics and several micro databases to estimate the stock and flow of the RAL for China from 1991 to 2015. Our results show a declining trend in the stock of the RAL, driven by the shrinkage of the surplus labor in agriculture. However, the scale of the RAL is still massive. We also find that nonagricultural sectors fail to absorb all transferred labor from rural areas. These conclusions suggest that current literature describing the Chinese economy as suffering a structural labor shortage is problematic.

Reserve Army of Labor: From Theory to Empirical Research

Marx's theory reveals that capital accumulation will keep increasing the organic composition of capital, and the relative proportion of variable capital will decline, resulting in the emergence of the relative surplus population, namely the RAL. One of the main functions of the RAL under capitalism is to impede the persistent increase in real wages. The RAL comprises three parts: floating, latent, and stagnant. The first includes workers left unemployed because of their replacement by machines. The latent section includes laborers excluded from the capitalist mode of production, such as individual handicraftsmen. Finally, the stagnant RAL contains the precariously employed, with extremely low wages and few or no protections or benefits.

In the 1940s, the economist Paul Sweezy enriched Marx's theory by incorporating the dynamics between the RAL and the active labor army. …

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