Investment Institute
Macroeconomics

The forces reshaping China’s labour market

KEY POINTS

China, the world’s largest labour market, is struggling to establish a comprehensive labour market indicator, predominately due to its two-tiered workforce
An emerging counterintuitive trend reveals a labour shortage, alongside slowing wage growth, indicating a polarised job supply and hollowing out of the labour force. Mobility restrictions have further exacerbated the mismatch
Deindustrialisation concerns risk China falling into the middle-income trap given its developing market status
The long-term impact of an ageing and shrinking population has yet to fully arrive, providing leeway for China to adjust. Technological advancements could help upgrade the service sector. Further delays in retirement age and easing mobility restrictions would alleviate labour supply pressures, though more social resources support will be essential

China’s divergent labour market metrics reveal a familiar deindustrialisation concern

An enormous but unorthodox labour market

Few things define a nation’s economic story as clearly as its labour market. In China’s case, that story is one of staggering scale, deep-rooted divisions, and rapid transformation. With the largest workforce in the world, China’s labour market should be one of the most closely analysed. Yet opaque information and complexities obstruct conventional analysis.


China’s labour market is shaped by a unique mix of state intervention, rigid institutional frameworks and the legacy of its urban-rural divide. It is a system where official employment data tells only part of the story, where millions of workers flow between cities and villages in response to shifting economic conditions and where industrial jobs that once lifted millions out of poverty are now vanishing at an alarming rate.


In this paper, we unpick the structural peculiarities of China’s job market, analyse why reported traditional employment metrics can be misleading; how decades of internal migration have shaped workforce dynamics; and the challenges posed by recent structural shifts and a shrinking labour force. While near-term challenges – such as the housing market adjustment and sharply rising trade tensions – are likely to dominate, we argue that deeper structural changes have been reshaping labour trends for over a decade. Furthermore, we suggest that China’s workforce may now be experiencing the very deindustrialisation which has affected other economies – ironically, a phenomenon often attributed to China itself.

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