Flexibility and Security Changes in the Labor Market and Consumption-led Growth in China

The purpose of this paper is to determine the conditions necessary for Chinese economic growth regime change, that is, the change from export-led to consumption-led growth. Although there are different approaches to this difficult transformation, in this paper, we consider the problem in terms of the interrelationship between institutional reform and flexibility and security changes in the labor market. Given that one-sided growth in flexibility without a parallel increase in security support in the labor market has restricted domestic consumption demand growth, we analyze these changes and interactions using the flexicurity framework, in which flexibility and security in the labor market are increased simultaneously. We compare the success of the flexicurity strategies in Denmark and the Netherlands and find three key differences between them and the Chinese labor market flexibility and security changes. First, the main change is that, in China, numerical and functional flexibility were increased and employment security was decreased to a large extent. Second, the changes depend more on institutional reform and policy decisions by the government than on labor/industrial negotiations. Third, the role of social security systems (mainly unemployment insurance) is limited, and thus, income security decreases.