1 Sources of Chinese labor productivity growth: A structural decomposition 2 analysis, 1987–2005 3 Ling YANG a, ⁎, Michael L. LAHR b 4 a School of Economics and Finance, Xi'an Jiaotong University, Xi'an 710061, China 5 b Center for Urban Policy Research, Rutgers, The State University of New Jersey, New Brunswick, NJ 08901-1982, United States Q1 6 8 article info 9 abstract 10 Article history: 11 Received 29 June 2009 12 Received in revised form 24 May 2010 13 Accepted 25 May 2010 14 Available online xxxx 15 We decompose labor productivity growth from 1987 to 2005 by examining six partial factors 16 (both supply and demand): changes in value-added coefficients, labor inputs, shares of sectoral 17 demands that are fulfilled domestically, input mix, and the intra-sectoral shares and 18 intersectoral mix of final demand. Our analysis confirms that simply by virtue of its size and 19 extremely low level of labor productivity, China's farm sector continues to weigh heavily in 20 China's overall economic advances. Labor savings have levied the largest influence on the labor 21 productivity on all sectors across all three study subperiods. We find that this transition is 22 highly correlated with capital deepening that accompanies China's opening up process. Still, 23 changes in the intra-sectoral shares and the intersectoral mix of China's final demand also have 24 become quite strong, especially in recent periods. Due to ever-increasing competitive pressures 25 as China continues to open, changes in industries value-added coefficients have tended to 26 counteract some of the positive benefits of labor savings for most sectors. The effects on 27 changes in labor productivity of technology change and changes in the use of imports have 28 been comparatively negligible and any variation in their sectoral effects waning over time Q2 . 29 © 2010 Published by Elsevier Inc. 30 JEL classification: 31 C67 32 F47 33 O11 34 O53 35 36 Keywords: 37 China 38 Economic development 39 Interindustry change 40 Input–output analysis 41 Productivity change 42 Structural decomposition analysis 43 44 45 46 1. Introduction 47 For 2009, China's Government announced that its GDP growth was 8.7% (The Economic Times, 2010). In developed countries 48 such growth would be a pipe dream. In a rapidly developing country like China, it is moderate growth and GDP growth on the 49 order of 5.0% is a nightmare. In fact, since 1978 or so Beijing typically has viewed GDP growth of 8% as a minimum desired 50 threshold. It has a real concern that, with low or no growth, rising unemployment could pose a threat to social stability and the 51 legitimacy of government. With this in mind, it is clearly important, at least in the near term, for Chinese officials to get a better 52 understanding of the factors that enable sustained GDP growth in China. 53 Much of its leaders' concerns stems from China's relatively low-income per capita. In 2008 its GNI per capita in terms of 54 purchasing power parity (PPP) was only 12.8% of that of the United States, 17.1% of Japan, 21.4% of Korea's, and 59.6% of Brazil's 55 (World Bank, 2009). But Beijing's concerns are heavily mitigated when the purchasing power of most households edges upward at 56 a sufficient pace, as it did even between 2007 and 2008 when it gained PPP by at least a percentage point against each of the above 57 countries. Fortunately, countries at China's present distance from the technology frontier have the capacity for rapid growth if they 58 can exploit and allocate available resources effectively. To do so, countries like China must adapt foreign technology efficiently and 59 find a specialized niche in the world's market economy (Maddison, 2007). China Economic Review xxx (2010) xxx–xxx ⁎ Corresponding author. E-mail addresses: lynnone@gmail.com (L. Yang), lahr@rci.rutgers.edu (M.L. Lahr). CHIECO-00462; No of Pages 16 1043-951X/$ – see front matter © 2010 Published by Elsevier Inc. doi:10.1016/j.chieco.2010.05.012 Contents lists available at ScienceDirect China Economic Review Please cite this article as: Yang, L., & Lahr, M.L., Sources of Chinese labor productivity growth: A structural decomposition analysis, 1987–2005, China Economic Review (2010), doi:10.1016/j.chieco.2010.05.012