This is a short post reflecting on how exactly China’s economy is doing. There are a lot of statistics floating around such as GDP or export. But recently I watched a few videos which drew me to a single measure: Labor share of GDP.

Labor’s role in GDP is important for several key reasons:

  1. Labor productivity is a fundamental driver of economic growth and living standards. Higher labor productivity, measured as GDP per hour worked, indicates more efficient production and generally leads to increased economic output.
  2. The labor share of GDP represents how much of the economic output goes to workers as compensation. This includes wages, salaries, and benefits. It’s an important measure of how economic gains are distributed between labor and capital
  3. Employment levels are closely tied to GDP growth. When GDP grows strongly, employment typically increases as companies hire more workers. This creates a positive cycle, as employed workers have more money to spend, stimulating further economic activity.
  4. Consumer spending, which is largely driven by labor income, is a major component of GDP. When workers earn and spend more, it stimulates economic activity and GDP growth. (The labor share of GDP in developed countries such as the US and UK have always been over 60%, whereas China is about 50%. See the visualization below from OutWorldinData.org.).

By the measure, China is entering dangerous waters. It is widely known that unemployment has been stubbornly high for the last few years. It is very hard for young people to find a job these days. A report from tradingeconomics.com indicates that the unemployment rate among the young is about 20%. There are also some evidence (for example this article from Fortune) that this number can be as high as 46%, which is actually consistent with what I hear from folks living there. (As to the official statistics of averaged unemployment of 5% of all labor, my tendency is to say do not believe it; they are highly manipulated and biased in the ‘optimistic’ direction.)

As a comparison, Spain had a financial crisis starting in 2009, and its youth unemployment rate hit 43% in 2010 and overall unemployment rate hit 21%. Those triggered a mass protest.

Will a similar disruption happen in China? I do not know for sure. But what is sure to happen is that without sufficient income, people are not having their ends meet. There will be no economic prosperity. There is only social unrest waiting to happen.

labor