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Abstract: As a result of substitution of capital for labor in agriculture and rigid demand of urban sectors for migrant workers, the rural-to-urban migration becomes irreversible process, and Todaro dogma, which aims to limit the migration under the assumption of “come-and-go” migration pattern, becomes an old-fashioned theory for policy-making. By empirically confirming the advent of the Lewis turning point ?C namely, a new stage of labor migration and more generally of economic development, the paper reveals the policy
implications of the Lewis turning point and proposes the policy reforms needed for a complete urbanization, including hukou system reform and equalization of public services.
Key Words: urbanization, Todaro dogma, hukou reform
I. Introduction
It is universally acknowledged by economists that agriculture’s share in aggregate output and the workforce tend to decline as an economy grows. However, economists only agree on the existence and inevitability of this phenomenon as a result of general economic growth; debates still arise on issues such as how production and employment are
transformed during the economic development process, what characterizes each stage of their transformations and what changes are indicative in the transformations. In China, there is little agreement on the way these transformations take place either from a theoretical or an empirical perspective, for the following reasons:
First, the explanations and predictions of development economics vary all the time. For example, while Lewis (1954, 1958) considered rural-to-urban migration an integral part of the development of a dual economy in developing countries, he in fact assumed that this process was a one-way movement, whereas Todaro (1969) and Harris and Todaro (1970) viewed it
as a circular movement following a repetitive “come-and-go” pattern.
Second, there have been dissimilarities with respect to the pattern of these transformations among countries and across time, which have made it difficult to determine any stylized facts about the two types of transformations. While countries such as Japan and South Korea accomplished their modernization through massive rural-to-urban migration decades ago, many developing countries―especially those in Latin America and East Asia―have been trapped by “urban diseases” such as extreme poverty and slums in urban areas. Third, the changes which have taken place in China have been too fast for scholars and practitioners to keep pace with. Conventional wisdom―such as the notion of a longstanding and everlasting excessive labor force in rural areas―prevents observers from understanding the potential for changing situations in labor demand and supply, which is particularly relevant in China’s case.
The reality and dynamics of China’s rural labor shift, and of its turning point in particular, can be observed through the theoretical framework of Lewisian development economics. Equally important is to apply the theory of demographic
transition to China to understand the changes in the demographic structure that have occurred in the past decade. Due to the implementation of strict population control policies and social and economic developments in China in the past three decades, in combination with reform and opening up, rapid economic growth has been underpinned by a rapid demographic transition from high to low fertility, and a consequent surge in the supply of labor. Proxied by a declining dependence ratio in econometric analysis, this has accounted for 26.8 per cent of per capita gross domestic product (GDP) growth during the period of 1982?C2000 (Cai and Wang 2005). In recent years, however, the main source of growth of the urban working-age population has been in-migration of the rural labor force, and it is predicted that by about 2015, the out-migrating working-age population in rural areas will not be able to meet the demand for the working-age persons in urban areas. That is, the total working-age population of the country as a whole will stop growing by this time and begin to shrink afterwards. The dependence ratio of the population will then begin increasing dramatically and the conventionally recognized demographic dividend is expected to vanish. This structural change in China’s population has been reflected in the recent
phenomena of rising wages and a shortage of unskilled migrant workers.
Setting the Lewis turning point as a milestone of development, a theoretical and empirical recognition of the end of an unlimited labor supply in China can help to identify the potential areas in which efforts can be made to sustain economic growth and harmonize the society in the near future. Migrant workers undoubtedly are at the center of the theoretical cognition and policy focus.①In a sense, changes in the status of migrant workers will determine the future vision of economic growth and social stability in China. In the 20 years leading up to 2030, the consequences of China’s demographic transition will be further revealed, as the working-age population stops growing in 2015 and the total population reaches its peak in 2030. For a country such as China, which has realized its rapid economic growth by fully utilizing its abundant and cheap labor force, the challenges brought about by the demographic transition have to be tackled so the country can exploit the potential of the its demographic dividend in the short and medium run and transform its growth pattern in the long run.
This chapter is organized as follows: Section II explains the
