The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
As China implements reforms under the 'new normal,' maintaining stability in the labor market is a
priority. The country's demography and labor dynamics are changing, after benefitting in past decades
from ample cheap labor. So far, the labor market appears to be resilient, even as growth slows, driven
in part by expansion of the services sector. Migrant flows and possible labor hoarding in overcapacity
sectors may also help explain this. Yet, while the latter two factors help serve as shock absorbers-
contributing to labor market stability in the short term-if they persist, they may delay the needed
adjustment process, contributing to an inefficient allocation of resources and curtailing productivity
gains. This paper quantifies to what extent structural trends and the reform pace affect employment
growth under the new normal. Delays in reform implementation would weaken growth prospects in
the medium term, running the risk that job creation will fall below policy targets, leading to labor
market pressures in the future. In contrast, successful transition might require faster reforms, including
in the overcapacity and state-owned enterprise sectors, supported by well targeted social safety nets.