Industry specialization, diversification, churning, and unemployment in Chinese cities

This paper studies how industry specialization, diversification, and churning affect unemployment rates in Chinese cities. Using a city level panel data set from 1997 to 2006, we find that the specialization of wholesale and retail industry can significantly decrease unemployment rate; however, specializing in finance industry increases unemployment rate. In contrast to the evidence from developed countries, industry diversity is positively and significantly associated with unemployment rates in Chinese cities, possibly due to the higher degree of industry churning during the sample period. We also find that urban economic growth, market maturity measured by the proportion of private sector employment, and human capital can decrease unemployment rate. Industry diversity does not stabilize unemployment; wholesale and retail industry increases unemployment fluctuations; but market maturity and human capital stabilize unemployment.