A career fair in Tengzhou City, Shandong Province on Jan.29, 2023 Photo: CFP

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Building a unified national factor market is part and parcel of building a unified national market. It is also a fundamental task of factor allocation reform. Labor is the most central, valuable and subjective factor of production in economic development. Therefore, it is necessary to clear the key blockages in its circulation, promote its free flow in a wider scope and facilitate the construction of a unified national labor market.

Unified national labor market

Over the past 40 years of reform and opening up, China’s economy has achieved continuous rapid growth. One of the major contributors is the flow of labor between regions, between urban and rural areas and between sectors. According to estimates, nearly half of the increase in total factor productivity comes from the shift of labor from low-productivity sectors to high-productivity ones. At a time when the economy is shifting from high-speed development to high-quality development, it is of great strategic importance to further optimize labor allocation and build a unified national labor market.

At the macro level, it is conducive to stimulating innovative thinking and increasing total factor productivity. In the new stage of development, promoting a smoother flow of labor and talent has more practical value. With the transformation of economic structure and labor supply and demand, it is necessary to rely on innovation to improve total factor productivity and provide an endogenous impetus for high-quality economic development. Labor is the core element of innovation and the carrier of knowledge, experience, information, ability, thinking, creativity, etc. The free flow of labor factors is not only the flow of labor itself but also a process of transmission and diffusion of heterogeneous knowledge. It is also a process of communication, sharing and even collision between different ideas. This process often leads to new knowledge and even inspires breakthroughs and creative “sparks” of ideas, which become an important source of innovation.

At the meso level, it is conducive to mitigating the mismatch between supply and demand and promoting the integrated development of urban and rural areas. Currently, structural contradictions between labor supply and demand still exist in China. While the supply of labor factors is generally insufficient, employment for some groups is still not effectively guaranteed, and there is still potential to be tapped in terms of labor supply. There is still plenty of room for efficiency improvement by promoting the free flow of labor and optimizing the reallocation of labor factors among spaces, sectors and industries. For one thing, it can alleviate labor shortages in some regions and industries and reduce employment costs. For another, it can also stabilize employment and expand development space for all types of personnel. Furthermore, optimizing the allocation of labor factors is also beneficial to narrowing the gap between urban and rural areas and promoting their integrated development.

At the micro level, it is conducive to the formation of an incentive mechanism to improve labor force quality in two ways. First, the free flow of labor factors exposes the labor force to different people and new things. This promotes the dissemination of new ideas, technologies and knowledge, and continuously improves human capital and comprehensive quality, thus enhancing innovation ability. Second, the free flow of labor factors allows labor and talent to experience the competitive pressures of a larger national and global scale, which in turn promotes their intrinsic motivation to continuously learn and improve their abilities. These will provide the corresponding intellectual support for the establishment of a unified national market.

All-round flow of labor factors

To promote the maximum free flow of labor factors, it is necessary to let all types of labor flow in all directions between regions, between cities and rural areas, between cities and between organizations, etc., so as to optimize their allocation, tap their potential and improve allocation efficiency to the fullest extent.

Income level is an important influencing factor behind the flow of labor. The income gap between regions demonstrates that there is still momentum and room for labor to move to the east. Although the flow of labor to some extent may increase the gap between regions in terms of economic aggregates, the real regional gap is reflected in the level of per capita income. The general rule shows that the resource-carrying capacity of developed regions is limited. As labor flows from underdeveloped to developed regions, a decrease in marginal labor remuneration will inevitably emerge in developed regions; conversely, when the labor outflow from the central and western regions reaches a certain threshold, their marginal remuneration will increase. 

Therefore, when the free flow of labor between regions reaches a certain level, the following situations may occur. First, the marginal labor remuneration between regions will gradually converge, and their per capita income will become increasingly similar, thus changing the direction of labor flow. Second, when the population concentration in the eastern region reaches a certain level, there will be a gradual westward movement or return of talent, and when the return of labor reaches a certain scale, the inter-regional industrial transfer will be promoted. Third, the transfer of some industries in the eastern region will also drive the reverse flow of labor. These effects will collectively contribute to improving the efficiency of talent allocation between regions. 

The flow tendency of the labor force should be reasonably guided, and the production potential of the labor force should be maximally stimulated. In recent years, the resident population of most large cities has continued to increase, and the shift in the labor force from small to medium cities to large cities or urban clusters is still quite obvious. These two mobility trends are conducive to further population agglomeration and have significant agglomeration efficiency and dividend effects. It should be noted that the development of small and medium-sized cities and rural revitalization are gradually forming good development spaces and policy expectations. Therefore, in contrast to the traditional push-pull theory, under the combined effect of the “push” of big cities and the “pull” of small and medium-sized cities and villages, the phenomenon of labor and talent returning to small and medium-sized cities or villages has started to emerge. It is therefore necessary to provide sufficient policy support and guarantees for the return of the labor force.

The flow of labor is also a process of optimizing the allocation of human capital. In addition to inter-regional and inter-city mobility, laborers may also choose to move between different employers in the same city in search of more suitable platforms. This constitutes a process of continuous optimal allocation of labor and human capital. Conditions should be created to encourage the two-way flow of labor and talent in different types, industries and even different systems to maximize the potential value. In addition, the formation of a cross-organizational free flow mechanism would also help force employers to improve labor utilization levels, make the best use of people and prevent brain drain caused by suboptimal employment.

Market mechanism 

To promote the free flow of labor factors, the central government has carried out a series of system and policy innovations, such as issuing “Opinions on the Reform of the System and Mechanism for Promoting the Social Mobility of Labor Force and Talent” and “Opinions on Establishing a Better System Mechanism for Market-based Allocation of Factors”. The key is to break down the institutional barriers that hinder the free flow of labor factors, construct and improve a market mechanism for the free flow of labor factors between regions, between urban and rural areas and between organizations, and put them into practice through supporting measures.

First, establish a market mechanism that encourages the free flow of labor between regions. It is important to accelerate the establishment of a sound unified and standardized human resources market system, promote the construction of digital platforms, promote the online publication of cross-region human resources flow data, and support the selection and flow of labor and talent in a wider scope with digitalization and information technology. It is also important to steadily push forward the reform of the pension and medical insurance systems, gradually achieve integration between different regions and types of insurance systems, and gradually form a unified social security framework that balances fairness and efficiency and supports the free flow of labor and talent.

Second, establish a market mechanism that encourages the free flow of labor between urban and rural areas. It is important to deepen the reform of the household registration system, release and relax the restrictions on household registration in cities other than certain megacities, construct and improve a social security and welfare system and public service system with uniform urban and rural standards, enable effective connection and convenient transfer with regard to employment, education, housing and medical care, and establish a citizenship mechanism for the rural-urban transfer population. It is also important to establish a return mechanism to encourage urban highly skilled labor and talent to return to their hometowns and develop an “internal attraction” for urban highly skilled labor and talent through diversified policy initiatives covering finance, currency, and social security, contributing to building beautiful villages and promoting integrated urban-rural development. Policies to change the one-way flow of labor and talent from rural to urban areas and encourage them to return should be further enhanced to form a two-way free flow of labor.

Building a unified national market is a systematic project. Promoting the free flow of labor factors and achieving integration of the labor market are the most dynamic modules and links in it. Establishing and improving relevant mechanisms to further promote the flow of labor between regions, urban and rural areas, industries and organizations, as well as promoting regional integration and urban-rural integration can help speed up the process of building a unified national labor market and provide strong intellectual support for the new stage of high-quality economic development.

The authors are from the Research Center of Socialist Culture Industry Theory with Chinese Characteristics, Nanjing University of Finance and Economics; School of Business, Nanjing Audit University; School of Economics, Nanjing Audit University, respectively. 

Edited by WENG RONG