Labor Allocation Effect on China’s Economic Growth

Hao Daming
School of Labor Economics, Capital University of Economics and Business, Beijing, China  
Abstract: Since the reform and opening up in 1978, the improving efficiency of resource  
allocation, particularly the flow and migration of agricultural workforce to non-agricultural  
sectors, has contributed greatly to China’s economic growth. However, scholars have  
seldom carried out continuous empirical study on the extent of such contribution mainly  
due to limited methods for the calculation of labor allocation effect. This paper employs  
the incremental analysis method of index to separate labor allocation effect from economic  
growth in order to conduct an analysis on such effect under the framework of economic  
growth. Using this approach, this paper has calculated the labor allocation effect during  
various periods of time in China between 1978 and 2014 and the results indicate that the  
flow and migration of labor constituted the major source of China’s economic growth during  
the periods between 1978 and 1987, between 1992 and 1998 and between 2003 and 2014  
and still have great potentials in the coming decade. After 2025, the labor allocation effect  
will diminish and is likely to become a factor that hinders economic growth.  
Keywords: labor allocation effect, incremental analysis of index, growth accounting  
JEL Classification Codes: C43, J24, O47

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