Will the Service Sector Promote China’s Long-Term Employment Growth?

Ding Shouhai and Xu Shan

Renmin University of China, Beijing, China

Abstract:  The coexistence of the slowing-down economy and the buoyant employment market has been the pattern in China in recent years, and the service sector has played an important role in this regard. This paper uses empirical analysis to prove that the service sector has a long-term mechanism to promote employment growth: first, the verification of the Baumol-Fuchs hypothesis shows that the income elasticity of demand for services in China is greater than 1. As the current development of the services is lagging behind, this sector has great development potential. Second, the revised employment equation shows that the employment elasticity of the service sector is much higher than that of the industrial sector, and its employment adhesiveness is stronger as well. The employment of the service sector can not only create more jobs for the national economy, but also help stabilize the job market. The employment pressure in China is mainly caused by migrant workers and college graduates. To solve the employment problems of these two groups, China has to promote the development of traditional services and speed up the upgrading of emerging services at the same time, and should neglect neither. This paper provides recommendations accordingly.

Keywords: service employment, Baumol-Fuchs hypothesis, employment elasticity

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