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The Movement of Workers from China to India Report

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Updated: Aug 20th, 2019

Abstract

The present globalization has a range of structural effects. This is not only in developed economies, but also in the developing economies such as India and China. While China’s economy is driven by the manufacturing sector, India’s economy thrives because of the swift expansion of its services sector. The growth factor for India’s blueprint economic development is that it is geared towards long-term expansion.

Nevertheless, the effects of globalization on labor force are reported in India, China and globally. In this context, both skilled and unskilled personnel form the key pillars for sustainability and rapid economic growth for these two countries.

However, the development of labor force and labor regulations between these two countries differs. Whereas China labor force majorly concentrates on skilled manufacturing, India’s labor force is skilled in services sector. This gives India a proportional advantage over China because the current world economy is geared towards services sector.

Introduction

In last few decades, India and China have gained impressive status because of their respective sustained and rapid economic development and growth. Since nineteen eighty, the country of China has prospered beyond its usual development rates. While the economic growth rate of India can hardly match that of China, India is still amongst the rapidly growing world economies.

Such exceptional economic achievements could be attributed to the fact that these nations were integrated into the universal economy. The impacts of integration principally on employment and economic growth have emerged as an essential academic investigation area. A review of study literature shows that when these nations were integrated into the worldwide economy, their economic growth rates were significantly affected.

The most prominent effect was the transfer of world labor force from China to India. This literature review problem necessitates that the researcher conducts a comparative and empirical analysis about the movement of workers from China to India.

Objectives

The general study objective is to investigate factors that make the world labor force move from China to India. Under the general objective, the following parameters will be looked into:

  • To investigate the differences and impacts of universal integration on the growth rates of these economies
  • To establish the structural composition of the Chinese and Indian sectors
  • To investigate the Chinese and India labor force distribution by sector
  • To investigate the employment distribution by type in India and China

Research Questions

At the conclusion of this study, the obtained outcomes should give reasons why world labor force transfers from China to India. Thus, research report will respond to the following questions.

  • What are differences and impacts of universal integration on the growth rates of these economies?
  • What are the structural compositions of the Chinese and Indian sectors?
  • What are the Chinese and India labor force distribution by sector?
  • What are the employment distribution by type in India and China?

Literature review

The spectacular growths in the economy of these two countries in the last two decades have been attributed to the magnificent labor force. India in particular has developed an efficient and effective services sector especially in the information and communication technology. India’s economy is largely driven by the services sector hence the need for skilled labor force (Ahluwalia 2002, p.76).

The change of policy towards the attainment of higher education and the adoption of modern technology has increased India’s comparative advantage in the production of high tech products as compared with China (Mahtaney, 2007). The increased skilled work force coupled with low wages make India attractive in terms of labor cost in comparison to China, Mexico as well as other fast growing developing economies.

In essence, majority of engineering and technology firms outsourced their operations in low cost countries such as India in order to reduce their operation costs (Freeman 2006, p.131). The increase of these offshore firms in India enabled skilled-high tech workers in China to migrate to India to fill the gap.

The economics behind this movement of workers is that developed countries with comparative advantage in the technology sector stand to suffer economic losses when countries like India compete successfully in that sector (Samuelson 2004, p.140).

Products from these new competing countries have the capability of reducing the prices of products in the world market due to low wages. As such, workers in developed countries have to move in those countries where chances of being productive are high, and there is less competition in employment (Samuelson 2004, p.140).

Another factor that has led to the movement of labor force from China to India is that India has become the best candidate of the global-multinational firm’s sourcing for workers (Panagriya, 2008). Multinationals relocate their facilities including high-tech research R&D as well as other operations to India where production is efficient and at low cost.

A large pool of offshore transfer of call centers and computer programming from developed countries to low-wage countries such as India is a natural-economic response to the low cost production (Panagriya, 2008).

The combination of low cost production, skilled workforce and low wages make India a formidable competitor in the labor market. Thus, as these large industries move to India, workers also tend to move along with them especially highly skilled workforce from countries like China (Kozul-Wright & Rayment, 2007).

Another factor is the integration of these countries economy into the world economy that has enabled free movement of labor between these to countries. In this context, integration refers to the openness and liberalization of the economy within the market-driven globalization (Kozul-Wright & Rayment 2007, p.29).

Within the context of China and India, integration is taking place within the existing globalization which, comprises of the domestic-labor-market flexibility, capital movements and free trade. From the explanation, globalization facilitates the achievement of integration of these two countries (Mahtaney 2007, p.197). The integration between these two countries and also in the global economy facilitates the free movement of labor.

Ghose (2008, p.49) argues that, the incorporation into the world economy generates essential incentives for structural changes in the formal sector of the economy and identifies the role of foreign labor force.

The incentive to boost exports brings proportional benefits to the labor intensive industries and encourages competition from imports. Thus, it generates pressure for technical enhancement within import substitution industries. Further, liberated trade furthered by the labor force transfer has a vitalizing impact on emerging nation’s productivity expansion.

This occurs through improved work efficiency as well as promoting specialty, financing practical step up and backing up large scale production (Ghose 2004, p.5110). Consequently, the escalation of job opportunities within the formal segment takes place when labor demanding factories have prolonged growth rates than the factories that are capital demanding.

According to Ghose et al. (2008 p.47) the employment effects of foreign capital and growth of trade are largely found within the formal sector. The reason is that most of the goods and services being traded are produced within this sector.

In the unofficial segment, neither business operations growth nor investment inflow has consequences on the country’s employment yield. This is because goods and services are produced for domestic consumption. In addition, the unofficial segment hardly collects any overseas resource inflows.

Ghose (2004, p.5115) argues that, at the global level, highly developed countries have a greater amount of skillful workforce. As such, they have a prospective proportional advantage in the production of skill-intensive manufactured products. In the contrary, emerging nations have a comparative gain in the creation of unqualified and physically produced commodities.

As a result, developing countries benefit more from the unskilled labor force. The effect on employment largely depends on the labor market regulations as well as the enforcement institutions (Kozul-Wright & Rayment 2007, p.54). Under circumstances that alterations in wages cannot be realized, the whole work schemes fails. However, these predictions are founded on significant suppositions that might not match up with realities.

Prior to the fiscal 1978 financial transformations, China had no redundancy setbacks given that workforces were assured of getting jobs via express occupation allotment. In addition, employment in China was characterized by restrictive movement from rural to urban areas tight control of wages by the administration (Ghose 2008, pp.48). The state authority over employment prevented the emergence of open employment.

However, the policy resulted in the amassing of the excess labor within the units of production in both the rural and urban areas. As the integration in the global economies continues, tough labor regulations were gradually dismantled leading to contracted tenure of minimum wage laws, rural urban migration and the privatization of medium sized public enterprises (Ghose 2008, pp.49).

The privatization of public enterprises led to the retrenchment of most public personnel. It was also believed that surfacing of private enterprises will lead to the creation of greater flexibility in the labor market. Contrary to this belief, China still does not have free labor market.

On the other hand, India had free labor market immediately after the economic reforms initiated in the 1980’s. Nevertheless, the free labor-market has not achieved its full potential due to some regulations that have effectively changed the labor from changeable to invariable factor of production (Ahluwalia 2002, p.73).

However, India has in the recent past transformed its labor force according to the liberalized policies more than China has done leading to more workers living China to work in India where the state has no control over workers.

Research Methodology and Study Design

Research Procedure

In order to investigate the reasons why the world labor force transfers from China to India, this research study was a quantitative research. The research data were gathered across the study population through sampling strategy. A research technique dubbed as survey method was drawn on while descriptive statistics were applied to help analyze the obtained data.

These research methods ensure that any unanticipated research hypothesis could be suggested and formulated. The study was also rather quick and somewhat cheap. These research methods are amongst the best given that they rarely stand a chance of disqualifying any notable alternative explanations. This is because they surmise to the event causation.

To illustrate the reasons why the world labor force transfers from China to India as they seem to exist when this study is conducted, the suggested descriptive statistics accrued from the observations made. In order to present significant research findings and appropriate conclusions, this investigative study on the reasons why the world labor force transfers from China to India used secondary data source.

The secondary research data and information accrued from relevant and current media articles, industrial reports, journals and books. A review of these academic materials was done to obtain secondary information.

Population and Sampling strategy

In this study, all labor force transfers from China to India, employment records, GDP and sectoral composition were deemed viable when carrying out the research. However, the population target was the selected nine sources including relevant and current media articles, industrial reports, journals and books.

Data Collection

Data containing relevant research information for this study were acquired from secondary sources. In fact, as a field survey, information and data offering the reasons why the world labor force moves from China to India were gathered through observation and reviewing. The secondary research data were acquired from relevant and current media articles, industrial reports, journals and books containing the research information.

Planned Method of Data Analysis

The collected research information was analyzed qualitatively and quantitatively. Data collected through secondary sources was analyzed by means of content analysis and logical analysis techniques.

Quantitative data analysis techniques including percentages and tables were also used to make sure that quantitative data analysis is comprehensible. The method will be applied for each group of items observed that corresponds to the formulated research question and objectives.

Analysis of data and study outcomes

According to Mahtaney (2007) claims, India and China have realized elevated growth and development in their financial and economic systems for years. The GDP growth rates for India and China from the fiscal 1980 to 1990 averaged at 5.70% and 10.30% annually.

According to Panagriya (2008), the average economic growth rates increased during the fiscal 2005 to 2007 whereby India recorded a GDP growth of 9.60% while China had 10.30%.

Whereas the GDP growth rate for India was below that recorded by China, India has a remarkable economic growth rate. India and China are the only global nations that have sustained their rapid economic growths from 1980s despite the setbacks posed by irregular fluctuations.

Both India and China have impressive economics performances. These are attributed largely to their marketplace oriented reforms intended to integrate these economies into the universal economy.

Unlike other developing nations, these states have passed gradually through the liberation and openness paths (Ahluwalia 2002, p.67). Thus, the level of India’s economic growth rate compared with that of China could be one of the reasons that cause the world labor force to transfer from China to India.

Besides, the transfer could be explored from the broader integration framework process that is documented in the study literature. In 1978, the shift of China to marketplace nation from the renowned premeditated country instigated by establishing extensive economic streamlining. The artistic uprising was detested in China. This country also realized greater setbacks within its planned economy.

On the contrary, the East African States had market oriented economies that inspired success. Ghose (2004) reported that China embraces corporatization, wider enterprise autonomy, contract system as well as the floatation of corporations’ equity both at international and domestic stock markets.

Some of these features are not favoring labor force. China was controlled by marketed forces such as entrepreneurship and market driven prices which made its economy be permeated. The country only relaxed after it had joined the world trade organization in the fiscal 2001, and this freed China from the foreign trade controls.

India in contrast initiated its systematic economic reforms which enabled the country to be a market economy rather than a socialist economy. The 1980s and 1991 reforms altered the basic formation of India’s economy as it eliminated certain quantitative controls.

For instance, India allows for foreign direct investments increment resulting into the expansion of private segment as well as dismantling import controls and lowering custom duties. All these restructured the role of government in the economy of India and permitted foreign direct investment which in turn created additional employment opportunities.

India and China have similar reforms although they pursued different growth strategies that attract global labor transfer. India has vast resources, but a majority of its labor force is incompetent and illiterate. Those who are supposed to work in various sectors lack expertise, thus allowing foreign labor force to apply and occupy the available job positions in China.

Conversely, China has well educated labor force who can occupy the vacant sectoral positions. From table one below; it is clear that the GDP sectoral compositions for these two countries are not quite different.

Within the GDP composition, the agricultural share for India and China were 38.10% and 36.10% before reforms took place. The share drastically reduced in 1990s, but India was still better than China. The composition of agriculture in India’s GDP was 19.60% while China reported 11.40% in the fiscal 2005.

The share of agriculture for these countries reduced with industrialization. The effects were rather different on service and industrial sectors. From research data, it is clear that the world labor force initially preferred China to India because China had initially been industrialized. The manufacturing sector contributed 33.60% of China’s GDP and its industries had increased steadily.

In India, industries only contributed 20.9% of the total GDP. In fact, since 1980s, India has never reported any considerable industrial growth rate. The growth of India results from the service sector whereas that of China emerges from manufacturing. The service sector of India has grown twofold compared with that of China.

Despite that fact, China exports more than what India exports, India is in the verge of increasing its export as the country is less reliant on imports as compared with China. Table two shows that the export share in India increased from 7.0% to 19.0%. China export share rose to 34.0% from 18.0% across the fiscal year of study. India’s growth prospect could be the reasons why world labor force has opted to move from China to India.

Table two shows that India’s service export share is higher compared with that of China. The transfer of labor force from China to India is attributable to various factors ranging from lack of experienced expertise, increasing economic growth rate and the booming service, merchandize, manufacturing and agricultural sectors of India. China is equipped with enough labor force.

According to the spread of labor force of India and China by sector, the inter-sector transfers of labor are related to the equivalent output increase in these segments. The implication is that these problems do not pose a challenge to China as compared with India. The indication is that India goes against the pattern of growth since its economic growth is driven by services sectors (Ahluwalia 2002, p.76).

The growth in India’s services sector is predominantly driven by information technology which, has greater value as far as employment is concerned (Ahluwalia 2002, p.76). The sector is currently absorbing workers in its sectoral labor force. However, due to its unique nature, IT sector only requires educated and skilled employees that constitute the minor proportion of the total labor force (Reserve Bank of India, 2008).

The inter-sector transfer of labor is higher in India compared with that reported in China. The reason is the free labor transfer policies in India as compared with that of China (tables 3). The figures can also be attributed to the ease with which immigrant labor can easily be absorbed by sectors in India as compared with China (Reserve Bank of India, 2008).

The prescribed employment segment has low aptitude due to intellect use up in China compared with India. A majority of skilled workers is migrating from India to China (Reserve Bank of India, 2008). The movement of skilled labor force was higher compared with low or medium skilled labor force (table 4 and 5).

Conclusion

According to empirical evidences, the increased integration of India and China’s economies into the global market has a range of effects. Nonetheless, the consequence of integration on human resources is relatively comparable. The difference is majorly seen in the overall economic output. It is also seen in the major drivers of the economy that determines the labor force each country has.

China’s labor force majorly comprises of manufacturing skilled workers while India’s labor force is majorly service oriented. The differences in the overall economic output, employment structures, and labor policies adopted by these countries have led to the movement of labor force. The Chinese labor migrates to India as a result of stringent state control of workers and the minimum wages adopted by the state.

References

Ahluwalia, MS 2002, “Economic reforms in India since 1991: has gradualism worked?” Journal of Economic Perspectives, vol.16, no. 3, pp.67-88.

Freeman, RB 2006, “Does globalization of the scientific/engineering workforce threaten US economic leadership?” Innovation Policy and the Economy, vol.39 no.6, pp.123–158.

Ghose, AK 2004, “The employment challenge in India”, Economic and Political Weekly, vol. 39, no. 48, pp.5106-5116

Ghose, AK 2008, “The growth miracle, institutional reforms and employment in China”, Economic and Political Weekly, vol.39 no. 31, 2008, pp.47-56.

Kozul-Wright, R & Rayment, P 2007, The resistible rise of market fundamentalism: rethinking development policy in an unbalanced world, Zed Books Ltd, London.

Mahtaney, P 2007, India, China and globalization: the emerging superpowers and the future of economic development, Palgrave Macmillan, England.

Panagriya, A 2008, India: the emerging giant, Oxford University Press, USA.

Reserve Bank of India 2008, Annual reports for various years, .

Samuelson, PA 2004, “Where Ricardo and Mill rebut and confirm arguments of mainstream economists supporting globalization”, Journal of Economic Perspectives, vol. 44 no.18, pp.135–146.

Appendices

Table one: The percentage sectoral composition of India and China’s GDP

The percentage sectoral composition of India and China’s GDP

Table two: the percentage structure of India and China’s sectoral exports

Agriculture Manufacture Merchandize Services
India
2005 6.3 42.20 17.80 33.70
2000 9.20 49.90 15.30 25.70
1993 13.20 51.80 18.40 16.60
1990 13.50 48.60 20.20 17.70
1983 16.80 31.00 30.20 21.90
China
2005 3.40 83.70 7.40 8.90
1997 7.50 75.20 12.90 11.80
1990 14.70 65.40 26 8.60
1984 18.90 43 47.30 9.70

Tables 3: Distribution of labor force of India and China by sector

China

Year Agriculture Industry Services
1980 70 19 14
1990 61 22 20
2000 51 24 28

India

Year Agriculture Industry Services
1983 87 15 17
1988 65 17 18
1993 64 20 20
2000 60 18 22

Table 4: Distribution of employment by type in china (% of total employment)

Type of employment 1990 1997 2005
Self-employment 51 46 40
TVEs 11 14 19
PEIB 4 10 14
State 22 20 9
Non-state 0.2 2 5

Table 5: Distribution of employment by type in India (% of total employment

Type of employment 1983 1994 2005
Self-employment 57 56 57
Casual wage employment 30 32 28
Regular wage employment 14 14 15
Formal sector employment 8 7 6
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