Effective Surplus Labor: Concept and Measures

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Effective Surplus Labor Concept and Measures

• Prof. Jingbei HU
• Chair Professor of Economics
• Tongji University, Shanghai, PR China
• April 12, 2005 in University of Michigan

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• Contents
• 1. Introduction where does the problem come
• from?
• 2. Traditional concepts and measures of
• agricultural surplus labor
• 3. Failures in traditional measures of
  agricultural
• surplus labor
• 4. Concept of effective surplus labor
• 5. Measures of effective surplus labor

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Introduction where does the problem come from?

• It is well known that there is a heavy surplus
  labor in agriculture in China
• But the shortage in migrated labor forces
  (mingong huang ???) evolved in many industrial
  areas in Chinas since last year.
• There is a co-existence of both, a large surplus
  and a large shortage in labor supply in China

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• Examples
• In Shenzhen in South China, 300 000 migrated
  labor forces are short
• In Dongguang in South China, 230 000 migrated
  labor forces short
• In different newspapers something as shortage in
  migrated labor forces stands in the title pages.
  It is reported that China confronts shortage of
  this kind for the first time since 20 years of
  the Reform.
• And wages for migrated labor forces began to rise
  since last year.

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• To solve the obvious contradictions between
  theory and practice, there are two possible
  explanations to think about
• 1) The shortage in migrated labor forces happens
  only in the short run. It happens because
• The Chinese government raised prices for
  agricultural products and cut agricultural taxes
  from 2003 on. These measures make some
  agricultural productions profitable and many
  peasants are reluctant to leave for city jobs.
• China got too quick industrial growth in these
  two years and many surplus labor forces are not
  ready enough for migration

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• 2) It is of long-run nature because the so-called
  surplus labor in China is almost eliminated.
• But there are in China no scholars who are
  favorable to this explanation.

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• In this paper I want to put forward a third
  explanation with a new concept of effective
  surplus labor and argue that a group of effective
  surplus labor can be identified from the whole
  pool of agricultural (surplus) labor forces.
• This group affects the supply-demand-relations of
  migrated labor markets effectively. In the case
  of shortage in labor supply coming from this
  group, the wages could rise, even if there is
  still much surplus labor in the agricultural
  sector.

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• Literature
• In Chinese only one found (Zhang, 2005). He
  calculated the industrial and agricultural
  demands in the year 2003 for agricultural labor
  forces of ages up to 24 years old and came to the
  conclusion, that this group of labor forces would
  be short in comparison to demands, while there is
  a large pool of surplus labor forces of ages from
  25 on (more than 70 millions).
• This paper will make use of Zhangs statistical
  studies and tries to understand the problem in
  general.

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2. The traditional concepts and measures of
agricultural surplus labor

• -- Traditional concepts
• 1) Economic definitions
• The standard concept of surplus labor resulted
  from Lewis seminar paper 1954. According to
  him, a peasant would be surplus if his marginal
  productivity in agriculture (MPA) is lower than
  the subsistence wage (E). A peasant should get
  this wage at least for his basic demands of life
  if he comes to take a job. That means
• If MPA lt E, then a laborer is surplus

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• Lewis believes that there is actually unlimited
  surplus labor in many developing countries around
  the world. These labor forces search jobs in the
  industrial sectors and lead industrial wages down
  to rural subsistence level with a gap related to
  the differences of life costs in urban and rural
  areas.

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• 2) Technical definitions
• Many definitions are put forth from more
  technical aspects.
• A part of peasants would be surplus if the
  peasants produce more agricultural products than
  demanded (Jorgenson, 1961). It should be noted
  that the highest demands for agricultural
  products are fixed in Jorgensons model.
• surplus peasants (Y/m)
• (Yhighest agr. product,
• m production coefficient of labor)

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• - A part of peasants would be surplus, if the
  cultivated land per agricultural labor force
  decreases in the long run Guo, 1995, or the
  natural resources per agricultural labor force
  decreases down to a certain level Zhang,1995.
• Here the man-land-relations are stressed.
• - A part of peasants would be surplus if their
  annual working hours are smaller than in urban
  industries He,1999

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• -- Traditional measures
• According to above definitions there are two
  kinds of measures of surplus labor.
• 1) Calculating marginal productivity of labor in
  agriculture. Researchers try to find the number
  of agricultural labor forces corresponding to
  certain parameters, e.g, MPA0, E or a certain
  quantity. The total agricultural labor force
  minus this number tells the surplus figure.

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• 2) Calculating the number of agricultural labor
  forces needed to produce certain quantities of
  agricultural products or to combine adequately
  with other inputs available to agriculture. The
  difference between this number and total
  agricultural labor forces will be the surplus.

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• Three tables about quantities of Chinese
  agricultural surplus labor
• See word-files

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• The above three tables show very different
  estimations on Chinese agricultural surplus
  labor.
• But all these estimations do not imply that China
  could see shortage in migrating labor forces
  during the first decade of the 21st century.
• How the problem has to be explained?

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3. Failures in traditional measures of
agricultural surplus labor

• All the estimations shown above are subject to
  measuring deficits.
• They are based on the common principle
• Rural surplus labor
• total rural labor force
• - adequate quantity of agricultural labor
• forces, calculated with different
• estimation methods

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• This principle has at least two premises
• 1) Homogeneity of agricultural labor force.
• 2) Surplus could be defined within the
  agricultural sector.

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• Regarding the homogeneity assumption
• It may lead to the image that all surplus labor
  forces go into industrial labor markets
  simultaneously.
• It means e.g. if there are 100 million surplus
  labor forces in Chinese agriculture, they would
  go to urban labor markets at the same time and
  cause unlimited labor supply of Lewis type.

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• If the migration process of agricultural labor is
  not seen as only one point in the economic
  history or if the analysis of this process does
  not stay at the macro level, the homogeneity
  assumption is too strong to grasp the process and
  structure of the peasant migration.
• We may need a new concept to structure the
  process at the micro level.

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• Regarding the agricultural Assumption
• The concept of agricultural surplus labor should
  not be understood only within the agricultural
  sector.
• A peasant is not necessarily surplus, if he is
  exceeding the agricultural labor demands to given
  technologies or exceeding the quantity of labor
  forces corresponding to some productivity
  indexes.
• If the labor surplus is defined with the
  co-existence of industrial sectors, we can say a
  peasant is not surplus if he, to any reasonable
  industrial wages, does not want to go to work in
  industrial sectors, although he is surplus within
  the agriculture.

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• Labor surplus appears only if there is a
  reference the industrial sectors searching for
  profits. For capitalist industries a labor force
  is surplus, if his marginal productivity does
  not, at least, reach his wage demand.
• In the traditional agricultural society without
  capitalist industries there would not be surplus
  labor even if the quantity of agricultural labor
  may be very big. In Chinas agriculture, e.g.,
  peasants have the right for working with land.
  They do not produce for profits and the marginal
  concepts are not important for their production.

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4. Concept of effective surplus labor (ESL)

• ESL Agricultural surplus labor forces who, to
  certain gaps of industrial wages over
  agricultural ones, are willing and able to
  migrate for industrial employment, but cannot get
  employed.
• Similarly, ESL can be understood as agricultural
  surplus labor which clearly affects to a certain
  wage level supply-demand-relations of industrial
  labor market.

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• Examples
• To the same wage gap
• a 50-years-old peasant (A) is surplus in
  agriculture, but may not migrate to search a job
  in industry
• a 20-years-old peasant (B) may very probably
  search a job in industry.
• Observed from the industrial labor market, both
  peasants do not have the same meanings for the
  market Person A may not be an effective surplus
  labor, while B is.

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• The personal difference between A and B is age.
  It is understandable that peasants of different
  ages have different migration costs and therefore
  different expectations to incomes they could earn
  in industry if they migrate.
• This reasoning leads to the considerations that
  the age may be a superficial explanation. The
  economic calculation plays decisively. Young
  people have to bear lower migration costs and are
  ready to get lower industrial wages than the
  adults.

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• There is a large amount of literature concerning
  developing countries which divide peasants in
  groups according to age, gender, education,
  region with distance to major industrial areas,
  etc. and which studies peasant migration
  behaviors with these characteristics.
• But beyond all these characteristics the economic
  calculation is hidden. So the ESL-concept tries
  to generalize these divisions and gives a
  description of general structures and processes
  of peasant migration in the developing countries.
  
• The concept emphasizes peasants who are ready to
  migrate for getting industrial jobs to prevailing
  wages.
• In the meantime, it implies that not the whole
  mass of peasants, but only a part of peasants
  have clear effects on industrial labor supply at
  a certain point of time.

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Importance of wages for the ESL-definition

• With increases of industrial wages comparative to
  agricultural ones, the probability that the
  50-year-old would emigrate to work in industry
  may become larger.
• Therefore
• Changes in wage could result in more or less
  effective surplus labor.

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• In this meaning we can get a function
• ESL f(w) f gt 0
• Fig. 1, see word-file
• following contents see word-file

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5. Measures of ESL

• From the definition of ESL, the logic of its
  measure could be thought out as follows
• ?-- Industrial demands for migrated workers
• ?-- agricultural demands for similarly qualified
  peasants
• ?-- total number of peasants of this group
• ?-- peasants of this group who are ready to
  migrate
• ?-- ESL

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• If ESL gtgt industrial demands
• Then wages remain constant
• If ESL lt industrial demands
• Then wages rise
• If ESL lt industrial agricultural demands
• Then wages may rise

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• First Industrial demand for migrated labor
  forces
• According to an investigation in the city of
  Dongguang, Province Guangdong in South China,
  where some 5 million migrated labor forces work
  in the industry and where the lack of further
  supply of these labor forces is obvious, 87 of
  demanded migrated labor force is agricultural
  labor forces with ages from 17 to 25.
• That is unmarried young agricultural labor is
  particularly needed for industrial production.

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• The measure of this demand, as in Zhang (2005),
  could be made as follows
• In 2003, there are 169.50 million peasants
  working in non-agricultural sectors. Some 46.5
  of them are young under the age of 25. It means
  that in China young peasants working in
  non-agricultural activities may amount to some
  78.87 million.

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• Second Agricultural demand for young
• peasants
• According to Chinas census of the year 2000
  and with some adjustments, young agricultural
  labor forces under the age of 25 could amount to
  19.3 of total agricultural labor forces. Assumed
  that this ratio could be used to the year of 2003
  and considered that in this year labor inputs for
  Chinas agriculture could be computed as 177.54
  million, we may conclude that agricultural demand
  for labor forces under the age of 25 would be
  34.27 million (177.5419.3).
• The total demand for young peasants is
• 113.14 million (78.87 34.27).

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• Third Availability of young peasants
• According to estimation by Zhang (2005), 21.7
  of Chinas total rural labor forces (489.71
  million) are young under the age of 25. It
  implies total availability of young peasants
  would be 106.26 mil. in 2003.
• Result
• Demand for young peasants (113.14 million) would
  be larger than their supply (106.26 million) in
  the year of 2003. The difference might amount to
  6.87 million

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• But in fact, the demand estimated is the input of
  labor of the young group and should not be larger
  than supply available.
• The problems may lie in the estimation of labor
  input in agriculture in 2003. The rate of inputs
  of young peasants to total agricultural labor
  should be much lower than that in 2000 with
  19.3. This rate in 2003 should not be higher
  than 15.

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• According to figures from NBSC officers papers
  (2004a,2004b) and Zhang (2005),
• Rural labor forces 489.71 mil.
• Migrated 169.50 mil.
• Rate 34.6
• Rural young labor forces 106.26 mil.
• Migrated 78.87 mil.
• Rate 74.2

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• The figure would point out that ¾ of young
  peasants have got industrial jobs.
• In consideration of
• -- agricultural demands
• -- cases young peasants have to remain at home
• -- particularly the desire of industrial
  enterprises
• it could be said that young peasants as ESL would
  be almost absorbed out now.
• The wages to attract ESL of young peasants could
  not attract new peasant groups as new ESL. They
  would have to rise.

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• Questions
• Who may the next ESL be?
• How big may the next ESL be?
• How big may possibilities of substitution between
  different labor groups for Chinese industry?
• Is the time of low-wages for Chinese industry
  over?

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• THANK YOU!
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