According to official statistics, China’s unemployment rate has remained at an exceptionally steady 4.0-4.3% since 2002, despite massive change in the economy over that period. A new National Bureau of Economic Research paper analyzing national household survey data from 1988-2009 suggests that the official index may have significantly underestimated the actual urban unemployment rate.  

From the abstract:  The rate averaged 3.9% in 1988-1995, when the labor market was highly regulated and dominated by state-owned enterprises, but rose sharply during the period of mass layoff from 1995- 2002, reaching an average of 10.9% in the subperiod from 2002 to 2009.

The survey does not cover more recent data, so their research does not show whether the labor market has deteriorated as the Chinese economy has slowed. But their figures do point to the large, lasting impact of the mass closures of bankrupt state-owned companies in the 1990s. The unemployment rate was just 3.9% from 1988-95 and then climbed steadily upwards. State firms had played the biggest role in China’s north-east and so their closures dealt the region a particularly heavy blow, with its unemployment rate averaging 12.5% from 2002-9.

Just how worrying are these findings? The data comes from the urban household survey, which is conducted by the National Bureau of Statistics.  Their unemployment index is more volatile than the registered jobless rate, making for a closer fit to the ebb and flow of economic cycles in China.

But if the official rock-steady 4.1% jobless rate is trusted by no one, the conclusion that China suffers from chronic unemployment of more than 10% is also worthy of a large dose of skepticism. As the authors readily admit, there is a major gap in their data. The survey only covers people who hold local hukou, or residency permits, and therefore excludes the tens of millions of migrants who stream to cities for work every year. In Shanghai, for example, some 14m residents hold local hukou, but another 10m people live and work in the city on a permanent basis. The latter are outside the remit of the urban household survey.

There is also good reason to think that the 10.9% unemployment rate exaggerates the problem.

The dataset doesn’t reflect rural migrant workers, even though they have been a huge source of urban labor in the last decade, making up as much as half of China’s urban workforce today.  That could mean that the actual unemployment rate is lower.   On the other hand, nearly 60% of rural migrant workers work in construction and manufacturing (link in Chinese). Given China’s slowing economy and sluggish export demand, they might soon be pushing the true unemployment rate up. 

Reporting on the new unemployment index for CBS Moneywatch, Robert Hanley notes that China’s economic slowdown has been apparent in the rising instances of labor unrest in recent years:

“Maybe unemployment is worse than I thought