Introductory Microeconomics Report: Labor Market in China

This report analyzes the challenges in the Chinese labor market, particularly the rising unemployment among university graduates. It explores the reasons behind this unfavorable job market, including the increasing number of graduates and external factors like trade tensions. The report examines the situation through economic models, such as supply and demand curves, to illustrate the impact of supply shocks caused by factors like visa policies. It also discusses potential government interventions, such as tax rebates, subsidized services, and state loans, aimed at mitigating unemployment. Furthermore, the report delves into the concept of a perfectly competitive labor market and its implications for wage determination. The conclusion emphasizes the need for government action to create more job opportunities and foster stable economic growth in China, referencing relevant academic literature throughout the analysis.

Running head: INTRODUCTORY MICROECONOMICS
Introductory Microeconomics
Name of the Student
Name of the University
Author Note

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Table of Contents
Introduction......................................................................................................................................2
Discussion........................................................................................................................................2
Answer to question A: Reasons for the unfavorable job market for fresh graduates..................2
Answer to question B: Growing unemployed graduates seems like a supply shock...................3
Answer to question C: Role of government interventions in order to defeat unemployment......4
Answer to question D: Perfect competitive labor market...........................................................5
Conclusion.......................................................................................................................................6
References........................................................................................................................................7

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Introduction
This paper has attempted at analysing the vulnerable condition of the labour market in
China. The growing incidence of lack of job opportunities for university graduates in the labour
market is a grievous concern to all job seekers in China. This paper has been developed with the
help of the article, namely, “Idle hands; Skilled but jobless” reflecting the uncertainty related to
the domestic and international policies.
Discussion
Answer to question A: Reasons for the unfavorable job market for fresh graduates
As stated in the report a record number of 8.3 million graduates were passed from the
Chinese universities in this summer. The number of passing graduates up soared by 45%
compared to the last decade. Recently, two-third of the workforce is graduate students, up and
about two times over the last three years. However, the capacity of the labour market is not
sufficient to absorb all the labour. Trade confrontation with America is considered as a cause of
consequence of deteriorating labour demand in China (Allison, 2017). America is having the
slowest growth rate compared to last three years. This lowers the labor demand in case of
outsourcing business. Further, owing to stringent visa policies, around half a million of fresh
graduates will be forced to back in China without providing any job opportunity. Therefore, fresh
graduates are expected to find themselves stranded in searching out a job in China.

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LS1
LS2
LD
W1
L1 L2
W2
Labor
Wage
Figure 1: Labor market dynamics
The above graph strives to explain the critical scenario of labor market China is facing
now. Figure 1 states that wage rate falls from W1 to W2 as demand remains constant with respect
to the increase in supply from Ls1 to Ls2. This results in aggravating the labour exploitation in the
labour market (Autor, Dorn & Hanson, 2016).
Answer to question B: Growing unemployed graduates seems like a supply shock
As per the article, the relative size of labour supply has been enhanced compared to
previous level in the Chinese economy. This abrupt increase in labour supply addresses the issue
of labour supply shock. One factor responsible for the supply shock is the stringent visa policies
in most of Western countries. As a result, students have no other option but to graduate from
Chinese Universities causing labor supply to increase. Slow growth of China’s economy as a
result of trade war with United State on the other hand reduces labor demand. Therefore,
currently the relative size of labor exceeds that of the relative labor demand.

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Answer to question C: Role of government interventions in order to defeat unemployment
The predicament situation in the Chinese labor market can be mitigated with the help of
the following government interventions, stated in the article. Some of these government
initiatives include.
1. Offering tax rebate and subsidized public services: Small firms are offered for a tax rebate
in case if they provide more job opportunities to the graduates. According to the national system
of household registration, new graduates will be enabled to avail public services at more
subsidized rates compared to other general public.
2. Provision of availing cheaper state loan for the Graduates: Graduates are eligible for a
state loan in exchange of a negligible collateral amount. This policy is expected to encourage the
graduates in taking part in entrepreneurial business (Feng, Hu & Moffitt, 2015).
3. Assisting graduates to find a job: Local governments are asked to assist the graduate to find
them jobs in scaring labour market. Local government has been directed to follow the path of the
city administrator of Guan in order to help graduate job seekers.
4. Job assigned directly by the government: Recently the government has taken some initiative
drives like in 1990s to help out the unemployed graduates. As per the government, employment
of graduates enhances the social stability as a whole (Dorn & Hanson, 2013). Finding out the
possible ways for graduate job seekers should be considered as a priority task to all local as well
as state governments.

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LD1
LD
2
LS
Le L2
Labor
Wages
W2
We
Answer to question D: Perfect competitive labor market
Wage in a perfective competitive labor market is determined by the interaction of both
labor recruiter and labor supplier. Neither of them is unable to influence the equilibrium wage of
the market. Employee salaries are entirely determined with the help of supply and demand. Here,
some university passed out graduates are reported to claim for higher wages. However, this will
have no impact on the labor market as labor demand in the market remains constant (Das &
N'Diaye, 2013). Any dispersed wage level will finally come down to the equilibrium wage
determined by both market supply and demand. As a consequence of that, graduates are advised
to take the jobs, whatever they are being offered by the employers right now (Li, Whalley &
Xing, 2014).
Figure 2: Wage adjustment in perfectly competitive market
The above figure delineates that the market no longer will be continuing to perform when
the wage rate gets enhanced owing to higher labour demand. The market will automatically

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return to equilibrium level lowering both wage and labour demand in accordance with the
previous supply level.
Conclusion
Referring to the article, stringent visa policy and trade war with America are the causes of
concern for the evolving unemployment graduates in China. Government needs to take necessary
steps in generating more job opportunities for the graduates in order to bring stable economic
growth in the country.

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References
Allison, G. (2017). Destined for war: can America and China escape Thucydides's trap?.
Houghton Mifflin Harcourt.
Autor, D. H., Dorn, D., & Hanson, G. H. (2016). The china shock: Learning from labor-market
adjustment to large changes in trade. Annual Review of Economics, 8, 205-240.
Das, M., & N'Diaye, M. P. M. (2013). Chronicle of a decline foretold: Has China reached the
Lewis turning point? (No. 13-26). International Monetary Fund.
David, H., Dorn, D., & Hanson, G. H. (2013). The China syndrome: Local labor market effects
of import competition in the United States. American Economic Review, 103(6), 2121-
68.
Feng, S., Hu, Y., & Moffitt, R. (2015). Long run trends in unemployment and labor force
participation in China (No. w21460). National Bureau of Economic Research.
Li, S., Whalley, J., & Xing, C. (2014). China's higher education expansion and unemployment of
college graduates. China Economic Review, 30, 567-582.

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