Creating the entrepreneur farmers needed

yesterday, today and tomorrow

Xiaobing Wang, Jikun Huang, Linxiu Zhang, Scott Rozelle

Jan 25, 2011

Percent of Pop’n in Ag. Sector

Income per Capita

US and other OECD nations

Ethiopia, Rwanda, etc.

“Iron Law of Economic Development”

Data from the World Bank

Percent of Pop’n in Ag. Sector

Income per Capita

Development = IndustrializationModernization = Urbanization

Zero: there are no high income countries in world with more than 10% of their populations that live in agriculture10%

Percent of Pop’n in Ag. Sector

Income per Capita

“Miracle Development—with Taiwanese Characteristics”

Taiwan—1950s

Taiwan—1974

Taiwan—today

Taiwan—1987

Percent of Pop’n in Ag. Sector

Income per Capita

In 1980, China was:

• Poor

• Rural

• Agricultural

China in 1980s

China at the End of Socialism

Is China moving along the Transformation Path,

according to the Iron Law? moving along the Transformation Path, according to the Iron Law?

hina moving along the Transformation Path, according to

the Iron Law?

• From left to right … INCOME

• From top to down … URBANIZATION/INDUSTRIALIZATION

China’s per capita GDP (at PPP) in the last one thousand years

010

0020

0030

0040

00

1850 19781000 1100 1200 1300 1400 1500 1600 1700 1800 1900 2000

Tang Song Ming Ch’ing

Since 1978

1911 –

1970s

Source: Angus MaddisonPoverty line

Becoming better off … income rising …

Shenzhen in

1980 …

… and 2000

Transformation Path

Percent of Pop’n in Ag. Sector

Income per Capita

So it is clear that as China is growing (moving left to right across the graph), it also is beginning to move “down” the transformation path …

this is “development”

What was the Role of Self-employed (through 2000)?

Self-employed

Migrant Wage Earners

• Self employment

• Definition:- Owned and operated by a single individual or group

of individuals- Owner’s earnings is in form of profits- Non-farm (does not include farming, although this is

also a self-employed, entrepreneurial sector)

Reason 2: Demand for services high

• High income growth• Service sector under developed

• High demand for services that could be provided by self employed

Why was there so much SE activity?

Why was there so much SE activity?

• Reason 2: during the 1980s and 1990s the hourly wage of an unskilled worker was almost flat ..

0

1

2

3

4

5

1990 2000 2008

Yuan / hour (real 2000 yuan)

• Reports that migrants continue to pour into cities …

• Reports that wages are rising fast and that there are labor shortages in many areas …

• Service sector across China is continuing to mature …

But, China’s labor markets have continued to evolved between 2000 and 2008 …

Question for Rest of Presentation

• What is happening to the SE sector over the past decade?

• From these trends, can we think about what will happen in the future?

• What does this mean for clustering?

speculative

Plan for the rest of the paper

Since this is mostly a descriptive, empirical paper:

FIRST: describe data

SECOND: use data to achieve our objectives:

a) disaggregate trends in rural labor by cohort, by off-farm type

b) explore the driving force behind

Data

Collected data from a nationally representative sample of households in late 2000 and in 2008

6 provinces - 1 in each of China’s “major zones”

Hebei, Shaanxi, Liaoning, Zhejiang, Sichuan, Hubei

5 counties per province-- one randomly selected from each income quintile2 villages / county20 households randomly selected in each

Sichuan

Hubei

Shaanxi

Hebei

Zhejiang

Liaoning

2000 China National Land and Labor Survey (First Wave)

-- 6 Provinces

-- 5 Counties / Province

-- 2 Villages / County

-- 20 Households / Village 1200 hh’s

Sichuan

Hubei

Shaanxi

Hebei

Zhejiang

Liaoning

2008 China National Land and Labor Survey (Second Wave)

-- 6 Provinces

-- 5 Counties / Province

-- 2 Villages / County

-- 20 Households / Village 1160 hh’s

Two villages in one county were almost completely destroyed by the earthquake in Sichuan

Surveyed: May 2009

Contents of Survey

•Housing•Farmland•Agriculture•Self-run enterprise•Consumer durables•Other income•Household basic information

•Employment (by individual … i.e., for men/women; by age)• off-farm employment from 2000 to 2008 (annual data)• Intensive off farm SE form

0

10

20

30

40

50

60

70

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

In 2008: 62% of rural labor force had jobs off the farm more than 80% of households had at least 1 person working off the farm

In 1980: only 16% worked off the farm

Overall Increase in Off-farm Work by Rural Laborers (note 100% is the full rural labor force ≈ 500 million people)

Cohort effect of off-farm participation

2000 2008

Self-

employment

Migrantwage earner

Self-

employment

Migrantwage earner

# 16-20 7% 43% 7% 63%

# 21-25 20% 36% 13% 61%

# 26-30 22% 17% 18% 48%

# 31-35 26% 7% 26% 28%

# 36-40 25% 4% 26% 19%

# 41-50 23% 1% 23% 12%

# 51-64 13% 0 15% 4%

Percent of self-employment and migrant wage earner, by age

During 2000s, SE is stagnant and migrant wage earners keep growing fast

0%

4%

8%

12%

16%

20%

24%

28%

32%

36%

2000

2001

2002

2003

2004

2005

2006

2007

2008

Year

Per

cent

of T

otal

Wor

kfor

ce

Self-employed

Migrant Wage Earners

Remember what happened through 2000?

0%

4%

8%

12%

16%

20%

24%

28%

32%

36%

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

Year

Per

cent

of T

otal

Wor

kfor

ce Self-employed

Migrant Wage Earners

SE and Migrant Wage Earners, 1981 to 2008

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

Self-employed

Migrant Wage Earners

Number of SE Firms

0

100

200

300

400

500

2000 2008

Even more dynamic than this …

60% of firms “died” between 2000 and 2008 … 50% of firms are “new” (born between 2000 and 2008 …

Why did this happen?

Why did this happen?

Wages in recent years also have risen fast (not surprising—given there are few people who do not have a job in most prime-aged cohorts)• During the 1980s and 1990s the hourly wage of an unskilled worker was almost flat ..

• But, between 2000 and 2008, rose by almost 60% (or 6.5% annually)

0

1

2

3

4

5

1990 2000 2008

Yuan / hour (real 2008 yuan)

Wages and Returns to Self Employment, 2000 and 2008

Predicted wage for the Self Employed

Returns to Self Employment

Income gap of being self-employer

The income gap declines

2000 2008

Actual hourly earnings 7.2 7.4

Predicted wage 3.1 4.7

Difference 4.1 2.7

Probit estimation of rural laborer’s occupation choice, 2008

Variables If off-farm rural laborers are self-employed (Self-employer=1; Wage earner=0)

Earning gap 0.010** 0.007*

(2.22) (1.79)Gender -0.249** -0.187*

(-2.53) (-1.80)Training 0.413*** 0.405***

(4.24) (3.86)Marriage 0.508*** 0.471***

(3.32) (2.93)Age 0.084*** 0.085**

(2.69) (2.59)Age square -0.0008** -0.0008**

(-2.23) (-2.15)

Why?

• Wages will continue to rise [faster than GDP … from now on …]

• Price of capital will continue to fall

• Service sector will rise

• Demand for quality in the economy will rise [Sonobe, Otsuka et al.]

So what about self-employed firms in China in the future

•Mostly will be gone …•Replaced by large, branded, manufacturing giants …

•For a long time we will feel the influence of clustering … but … it will not be clustering as we see in the 2000s

•There is still a lot to study … and all of it is interesting!!