Changing China’s labor laws to let companies fire workers more easily is one of the best ways to improve economic efficiency and create new jobs for people laid off from state-run enterprises that are cutting positions to help rein in excess capacity.

That’s the prescription from Chief Executive Officer Evan Guo of Zhaopin Ltd., operator of one of the country’s biggest job websites. Underemployment, lack of labor mobility and skill mismatches are big problems for the labor market even as employment appears relatively strong and steady, he said.

"Laying people off is always hard, but you can’t solve the problems by not letting people go," Guo said in an interview. "There should be better channels to mobilize talent and labor across regions and firms."

Chinese authorities see mass layoffs as especially toxic and want to avoid them to reduce the risk of social unrest. That’s a concern for officials who also must balance the desire for stability with the need for unprofitable state-run businesses to fire employees who aren’t needed. This dynamic keeps people in the wrong jobs and makes the labor market less dynamic just when it needs to be more fluid amid a broader economic rebalancing.

Severance Pay

Fired workers are legally entitled to one month’s pay for each year of service, up to a maximum of 12 years. In the event of cutting more than 20 jobs due to economic conditions, companies must first get approval from local government officials. Slim compensation packages have spurred protests and sometimes violence.

Companies are often reluctant to fire even in hard times, according to Zeng Xiangquan, who’s been producing a quarterly job market report based on Zhaopin.com data for the past seven years. Instead, they cut pay and hours or push early retirement.

‘Really Grim’

"Underemployment is the real problem," said Zeng, a labor economist at Renmin University in Beijing. When underemployment is factored in, "the job market outlook in China is really grim."

Another complication, Guo said, is that companies cut pay or hours partly to force workers to resign because dismissing them can be very expensive and difficult.

That’s in line with views expressed by some top officials. Labor laws "aim to protect workers, but hurt some of them instead," Finance Minister Lou Jiwei said in March. It’s difficult for companies to fire unneeded workers under current laws, he said, adding that such conditions reduce opportunity for job seekers because they leave fewer openings.

Such a dilemma about firing is adding to an increasingly acute labor-market mismatch. While overall employment remains robust, conditions vary dramatically across regions and industries. The demand-to-supply ratio in coal and steel shows little hiring, with only 0.24 vacancy per job-seeker, according to data from Zhaopin and Zeng. It’s the opposite in the new economy, where there aren’t enough employees: Technology and e-commerce have 11.47 jobs per applicant and there are 4.2 vacancies per seeker in finance.

Shanxi, Shenzhen

Amid an epochal rebalancing from the old smokestack-industries to new sources of growth led by consumers and services, regional divides also are widening. In places like Shanxi Province, where coal is king, vacancies-to-job seekers is about a third of the national average. In the big cities and and vibrant coastal urban centers like Shenzhen, in the Pearl River delta that borders Hong Kong, there’s enormous labor demand, Zeng said.

Those mismatches and the lack of labor mobility that’s long afflicted China deals an especially hard blow to the services sector, which needs the most flexibility for positions that require extensive knowledge and training, Guo said. That’s a drag on rebalancing, and it will take a long time to fix because out-of-work miners can’t just easily get jobs in the service sector without re-training, which the government must subsidize, he said.

Nationally, there are more vacancies than job seekers, a healthy sign. The demand-to-supply ratio climbed to 1.93 in the second quarter from 1.71 in the prior three months, according to the latest report by Zhaopin and Zeng’s China Institute for Employment Research.

For Guo, watching the job ads is a solid leading indicator for the future of the world’s second-largest economy, and a better gauge than the official government data. The official unemployment rate has been almost completely unchanged since 2010. He said Chinese workers are worth watching as they hop fast between companies and sectors.

"People may tell the weather by listening to what the forecasters say," Guo said. "But I’ll check whether the ants are moving on the ground."

Source:
courtesy of BLOOMBERG

by Bloomberg News

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