Structural Change and Aggregate Employment Fluctuations in China

Abstract

In developed countries, aggregate employment is strongly procyclical and almost as volatile as output. In China, the correlation of aggregate employment and output is close to zero, and the volatility of aggregate employment is very low. We argue that the key to understanding aggregate employment fluctuations in China is labor reallocation between the agricultural and nonagricultural sectors, and that the income effect plays an important role in determining the labor reallocation dynamics in both the long run and short run.