Labor Market Reform, Income Inequality and Economic Growth in China


  • The authors are grateful for research support from the National Social Science Project (07BJL051), the Ministry of Education of China (07JZD0023 and Program for NCET), the Shanghai Leading Academic Discipline Project (B101) and the “985 Project” of School of Economics in Fudan University. Helpful comments from the editors and the team members of the China–India comparative study on informal employment are greatly acknowledged.


The year 1996 was a turning point both in terms of Chinese labor market reform and in China's economic growth pattern. Before 1996, labor market reform was mainly implemented through adjustment of people's occupation and income structure. Since 1996, employment restructuring has led to differentiation in terms of employment status. Labor market reform in the former stage resulted in slow growth in wages, whereas reform in the latter stage enhanced economic efficiency. Both stages have enabled the Chinese economy to apply its comparative advantage of low labor cost. Labor market reform has also increased income disparity and, therefore, new challenges are posed in sustaining economic growth. China needs to adjust its development strategies and introduce labor market reform that can improve income equality, so as to achieve sustainable economic development.