I have been engaged in a discussion with an esteemed colleague on whether the current wave of migrant worker unemployment is similar to the last wave of unemployment, which took place in the late 90s when millions of state-owned enterprise (SOE) workers were laid off. The argument seems straight-forward. Back then, tens of millions (even as high as 50 million) SOE workers were laid off or furloughed with minimal compensation. Aside from thousands of small scale protests in industrial towns, China weathered that wave with few signs of general instability. Why should it be different this time, especially when urban residents now receive minimum living assistance of 2-300 yuan a month and rural residents receive 1-200 yuan a month (assuming the system works perfectly). However, there are some key differences off the top of my head:
1. SOE workers in the late 90s tend to have housing in their factories already, rent free. Migrant workers, should they decide to stay in cities, must pay for housing, which can be quite costly as a share of social security payments.
2. Migrant workers are now on average much younger than laid off SOE workers. A Caijing article has an age break down, and eye-balling it suggests an average age of low to mid 30s, which is quite a bit younger than the average laid off SOE workers of the late 90s (mid 40s to mid 50s). This means migrant workers would not be happy with just a lump sum payment (typical way of settling the SOE workers) and would want increasing opportunities. If frustrated expectation could be measured, I would guess this wave of unemployment, whenever it peaks, will generate much more of it than in the late 90s.
3. Furthermore, SOE unemployment mainly did not affect the welfare of others, especially in insulated factory towns. In contrast, migrant wages are intimately tied to the welfare of 320 million rural laborers (and a much larger body of rural residents). In 2007, wage income made up as much as 40% of rural income. On the margin, growth in wage income contributed to at least half of the rural income growth, if not more. With migrant workers returning home and wages falling for those who are still employed, the income impact on rural households will be enormous. To be sure, the government is trying to counteract it with subsidies, but the impact will be limited.
4. SOE workers lost their jobs, but at least they were not fighting for shrinking resources with those in their own communities. All the workers in a factory town suddenly lost their jobs, but they all still had access to basic goods like housing and some utilities. They all went to petition the government for some money. There were few sources of conflict between the laid off workers. Currently, return migrant workers are fighting for limited land and food with people who chose to stay at the farms. On top of that, there is a severe dought in much of northern China, where many migrant workers come from. The level of local social conflict is probably much higher in this round.
So what if it’s worse this time around? As I indicated in a previous post, this just increases the potential for a systemic shock. Of course, it may not happen, but the probability is higher, especially in large cities near where migrant workers live, such as Zhengzhou, Chongqing, and Chengdu.