INTO A NEW NORMAL AN ANALYSIS ON THE ECONOMICS OF LABOR UNREST

Abstract

China’s economic growth has reached a New Normal, and this means a necessary economic structural change. This change has three important characteristics: moderation of growth rates, an optimization of economic structures and a transition into advanced economic drivers. In order for China to escape the so-called Middle Income Trap, China needs to develop its human capital and shift away from cheap labor fueled manufacturing. In addition, China needs focus on its domestic markets as well as investing internationally to fuel that domestic demand. China is exactly in the middle of that process currently, and it is both focusing on expanding its foreign direct investments internationally but also keeping up the export manufacturing that its economy depends on. This New Normal will necessarily introduce new social tensions, and these social tensions caused by economic shifts will be made of mostly of workers displaced and adversely affected by these changes. There is an inherent assumption in the literature of the direct casual effects of economic downturn on labor unrest, but very few have attempted to prove it empirically. The paper first delves into a qualitative analysis of relevant literature on labor unrests, and examines the definition, the history and the government responses to labor unrest. The paper then provides the quantitative analysis using a 2sls IV regression examining the existence of a causal effect of economic indicators on labor unrest. The findings suggest that there is in fact a causal relation between merchandise exports and trends in labor unrest. The findings also suggest that foreign direct investments may also be an economic indicator that has a causal effect on labor unrest. Together, the paper suggests that China’s best bet against labor unrest is to focus on its economy as China’s current responses to labor unrest creates potential future problems and is in of itself a continuously occurring problem. The paper also suggests that in the current global pandemic, China should focus not only on its own domestic markets but also the world for which it relies on for exports.