Review of Economics & Finance Submitted on 22/06/2016 Article ID: 1923-7529-2017-01-66-14 Yang Liu ~ 66 ~ Job Search and Labor Market Outcomes of New Graduates in China: Using the Latest Available Survey Data Dr. Yang Liu Research Institute of Economy, Trade and Industry 11th floor, Annex, Ministry of Economy, Trade and Industry (METI) 1-3-1, Kasumigaseki Chiyoda-ku, Tokyo, 100-8901 JAPAN Tel: +81-335011363 Fax: (81)335018414 E-mail: [email protected]Abstract: This is the first study that uses data collected after the new reform of the household registration system (hukou) on the topic of job search and labor market outcomes of new graduates in China. Data of recent years were collected via an original survey. Results indicate a significant, positive effect of search effort on finding a job, which was rarely observed before the reform. Furthermore, parents’ income contributes significantly to starting wage, but has no significant effect on finding a job. This could be because parents’ income is the source of major financial support for unemployed new graduates in China, theoretically contributing to wages but not affecting job-labor match. Moreover, the study examined details related to graduates’ human capital and found that participation in university activities contributes to higher levels of starting wage upon graduation. The effects of different methods of job search were also examined. In addition, contrary to previous studies using data before the new hukou reform, this study found no significant wage gap between urban hukou graduates and rural hukou graduates. Keywords: Job seeking; Search effort; Starting wage; Labor productivity; New graduate JEL Classifications: J31, J71, R19 1. Introduction Employment of new graduates has become an important issue for Chinese society. The number of university students increased sharply in recent years, followed by unemployment and stagnant wages for graduates (Bai, 2006). Furthermore, for a long time, China has been transitioning from a planned economy to a real labor market. Employment of new graduates in China has been affected by hukou, that is, the region where the person’s household is registered. In most cases, this place of registration is the person’s birthplace 1 . However, this system has been reformed in recent years by abolishing the distinction between urban and rural hukou. Based on the most recent data collected in 2013, we aim to provide new perspectives of the determinants of finding a job and starting wages of Chinese graduates. Previous studies on job-search behavior and employment of university graduates were conducted based on data collected before the hukou reform (e.g., Li and Zhang, 2010; Li, Ding, and 1 Hukou is inherited from the previous generation, usually the mother. In most cases, it is the birthplace. Sometimes it is not where the person born, for instance, if the person’s parents are migrants from other regions with hukou of other regions, the person’s hukou will be the same with them, not her/his birthplace. It is usually difficult for her/him to obtain a local hukou.
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Review of Economics & Finance
Submitted on 22/06/2016
Article ID: 1923-7529-2017-01-66-14 Yang Liu
~ 66 ~
Job Search and Labor Market Outcomes of New Graduates
in China: Using the Latest Available Survey Data
Dr. Yang Liu
Research Institute of Economy, Trade and Industry
11th floor, Annex, Ministry of Economy, Trade and Industry (METI)
1-3-1, Kasumigaseki Chiyoda-ku, Tokyo, 100-8901 JAPAN
Employment of new graduates has become an important issue for Chinese society. The number
of university students increased sharply in recent years, followed by unemployment and stagnant
wages for graduates (Bai, 2006). Furthermore, for a long time, China has been transitioning from a
planned economy to a real labor market. Employment of new graduates in China has been affected
by hukou, that is, the region where the person’s household is registered. In most cases, this place of
registration is the person’s birthplace1. However, this system has been reformed in recent years by
abolishing the distinction between urban and rural hukou. Based on the most recent data collected in
2013, we aim to provide new perspectives of the determinants of finding a job and starting wages of
Chinese graduates.
Previous studies on job-search behavior and employment of university graduates were
conducted based on data collected before the hukou reform (e.g., Li and Zhang, 2010; Li, Ding, and
1 Hukou is inherited from the previous generation, usually the mother. In most cases, it is the
birthplace. Sometimes it is not where the person born, for instance, if the person’s parents are migrants from other regions with hukou of other regions, the person’s hukou will be the same with them, not her/his birthplace. It is usually difficult for her/him to obtain a local hukou.
and Sunada (2004) examined job changes of Japanese workers and found that different job-search
methods have different effects on the period of finding a new job and the wages of the new job.
Thus in this study, we also control for the effect of different job-search methods.
Moreover, when examining the role of human capital, we notice that except for academic
achievement, there are other factors related to the potential of desirable qualities and skills of
graduates. Li, Morgan, and Ding (2008) argued that potential employers tend to value experience in
student societies or in voluntary social work, and tend to provide such students with higher starting
salaries. Therefore, in this study, we introduce variables of activities undertaken in and outside of
university, as well as being a student Communist Party member.
The remainder of the paper is as follows. Section 2 reviews the literature. Section 3 introduces
the theoretical model. Data used to populate the model are discussed in Section 4. Section 5 reports
the results produced by the estimation models. Finally, Section 6 concludes.
2 This model compares vacant jobs to “urns” and job applications to “balls” tossed at the urns by job
seekers. A particular job seeker simultaneously and randomly sends out a certain number of applications for the vacant jobs. A match occurs when a “ball” goes into an “urn.”
We conducted a survey and collected data from four universities in China’s Liaoning Province
in June 2013, the last month before graduation. Liaoning Province is an industry center in the
northeast of China5, with many state-owned enterprises (SOEs) and other firms that attract
graduates from local universities. The Government of Liaoning Province announced it would not
distinguish between urban and rural hukou in 2009 (Liaoning Provincial Government, 2009), four
years before our survey was conducted. Our questionnaires were given to all new graduates in the
undergraduate schools of those universities, and 3,850 were answered and returned.
We carefully collected and cleaned the survey data. To obtain the most accurate values, data
for wages are the wage that appears on the signed employment contract of the graduate.
Furthermore, to exclude people who have not engaged in job search, the observations of students
that would continue studying in graduate schools or abroad after graduation, or students who were
preparing to start their own businesses, were deleted, leaving samples of only students that were
searching for jobs as employees6. Moreover, hukou refers to pre-university hukou status because
students receive temporary local hukou, which is limited in the university period, while what
matters for university acceptance and the job market is the original pre-university hukou.
Our data are credible for research purposes. There is much evidence to support them. First, the
average level of wages among the sample is 2423 yuan, which is almost the same level as a national
survey of 2013 new graduates (2,119 yuan on average), conducted by Ganji Co. (2013). In addition,
the average rate of finding a job was close to that of a national survey of 2013 new graduates
(91.8%) conducted by MyCOS Research Institute (2014). Furthermore, parents’ monthly income is
consistent with the reality of China: it is much higher for urban hukou graduates than rural hukou
(4330 yuan for the former and 2532 yuan for the latter, on average).
Descriptive statistics are reported in Table 1. Furthermore, data statistics for urban hukou and
rural hukou graduates are shown in Table 2. Note that in Table 2, there is no significant difference of
average wage level between urban and rural hukou graduates. Although urban-born graduates send
more applications than rural-born graduates do, urban hukou have a lower proportion of receiving at
least one offer; a stark gap is parents’ income, which is 4,330 yuan for urban hukou graduates and
2,532 yuan for rural hukou graduates. In addition, we examined the correlation between hukou (the
administrative rank of the household registration) and other variables, and found similar results: a
positive correlation between hukou and application, a negative correlation between hukou and
job_found, and a positive correlation between hukou and parents_ income. Based on those data, we
examine determinants of finding a job and the starting wage of new graduates in the following
Section 5.
5 Liaoning ranks among the top three provinces in China in production of pig iron, steel, and metal-
cutting machine tools. Liaoning is one of the most important raw material production bases in China. 6 This does not cause problems related to sample selection because graduates who have not searched
for a job are not within the population on which we focus in this study.
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Table 1. Descriptive statistics
Variable Effective N Mean Std. Dev.
Job_found 2042 0.94 0.24
Wage 1989 2423.89 1373.19
Application 2468 8.47 11.78
Search_period 2199 5.99 3.93
Search_time_per_day 2554 8.30 10.46
Method_network 2578 0.44 0.50
Method_in_university 2577 0.81 0.39
Method_out_university 2580 0.29 0.46
Method_job_exchanges 3850 0.19 0.39
Method_determined_network 3850 0.09 0.28
Parent_income 2931 3695.90 3167.18
Short_college 3023 0.33 0.47
Male 3092 0.78 0.41
Age 3092 21.86 1.00
Hukou 3086 2.81 1.56
Nature_science 3117 0.88 0.33
Qualification 3134 0.63 0.48
Prize 3126 0.62 0.48
Party_member 3112 0.22 0.42
Activity_in_university 3113 3.44 4.58
Activity_out_university 3098 2.88 4.28
SOE 3850 0.22 0.41
Notes: job_found represents whether the student has received at least one offer after applying for a
job (Yes=1, No=0). Hukou is the administrative rank of the household registration of the
graduate when she/he takes a university’s entrance exam. Students can have a hukou status of
one of six types: four big cities controlled by the central government (hukou=6), cities that
are administrative centers of provinces (hukou=5), general cities (hukou=4), town-level cities
(hukou=3), towns (hukou=2), and villages (hukou=1).
Table 2. Data for urban hukou and rural hukou graduates
In the results associated with wage determination, we found that, as expected, parents’ income,
the major source of financial support if the student cannot find a job upon graduation, has a very
significant positive effect on wages. This finding is consistent with the theoretical model, that is, a
greater expectation of financial support from the state for unemployment enables the graduate to be
more patient and wait for a high-paid job, leading to a higher level of bargaining wage. Note that
parents’ income of rural-born graduates is much lower than that of urban-born graduates in China,
which could lead to a smaller effect of parents’ income on the wages of rural-born graduates.
With respect to factors related to labor productivity, we found no significant effect of obtaining
a vocational qualification, receiving a prize during university studies, or being a Communist Party
member on initial wage rate7. This is consistent with findings produced by Li, Ding, and Morgan
(2009), who found that pursuing a minor course of study or having a higher-class rank do not
significantly affect the starting wages of Chinese graduates. The non-significant relationship
between academic results and starting wages may be because university graduates typically do not
need outstanding academic achievement, and the academic level of only receiving a university
degree may be sufficient for the graduate’s first job. Therefore, employers could pay more attention
to graduates’ personality characteristics, such as cooperation and diligence, which is associated with
experiences in student societies or volunteer work, as argued by Li, Morgan, and Ding (2008). Their
argument might be valid, given the significantly positive coefficient associated with activity_in_
university in our results, which indicates that students who undertake activities at university could
receive higher starting wages upon graduation.
Moreover, we found that hukou has a significant negative effect on wage determination.
Specifically, results show that graduates from rural areas and small cities receive higher starting
wages than their counterparts from large cities do. The reason could be that the average
achievement of entrance examinations of students born in rural areas or small cities is higher than
that of those born in large cities; therefore, rural-born students could represent a higher level of
human capital, which leads to higher starting wages when they graduate. This finding differs from
most previous research, which has largely found graduates from urban areas tend to receive higher
wages (i.e., Li and Zhang, 2010; Li, Ding, and Morgan, 2009; Wang and Moffatt, 2008). Still, this
discrepancy is likely due to these studies being performed before reform to the hukou system.
In addition, the result indicates that graduates who find jobs in SOEs receive a higher level of
wages. The reason could be that SOEs are financed by the government and usually have access to
more capital in China, which leads to a higher ratio of capital per worker, thereby increasing labor
productivity and contributing to wages, as indicated by the theoretical analysis (equation (6)).
For the control variables in wage estimation, the result indicates that a student whose job
search from start to finish is longer could find a high-wage job. The reason could be that the
probability of meeting a high-wage vacancy is higher if the job-search period is longer, given a
fixed length of university years.
7 A usual problem when examining returns on education modeling is the causal effects of educational
attainment. However, we did not examine this factor for several reasons. First, the study features a model related to job-search behavior; all respondents are undergraduate students of a similar education level. As such, we were unable to perform an analysis of graduates of different education levels. Second, we included some variables related to workers’ expected labor productivity into the model (e.g., three-year course i.e., short_college), vocational qualification, and prizes received during one’s time at university. Results show that none of these factors is a significant predictor of wages. As such, they do not introduce bias into the model.
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Furthermore, we found no significant effect of a graduate’s use of his/her social network on the
graduate’s first wages. This is partly consistent with Wang and Moffatt (2008), who found no
significant results for the association between various job search methods (including the use of
social contacts) and starting wages in China. However, our results further indicate that a graduate
could find a higher-wage job if he/she conducts job searches via recruitment meetings at
universities. It is possible that representatives for employers that pay high wages are concentrated at
these university-sponsored recruitment meetings.
Table 4. Determinants of starting wage (Dependent variable: Starting wage)
Variables Model (1) Model (2) Model (3) Model (4) Model (5)
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