Employment Effectiveness of China's Economic Stimulus Package

33China & World Economy / 33 – 46, Vol. 18, No. 1, 2010

©2010 The AuthorsJournal compilation ©2010 Institute of World Economics and Politics, Chinese Academy of Social Sciences

Employment Effectiveness of China’sEconomic Stimulus Package

Fang Cai, Dewen Wang, Huachu Zhang*

Abstract

Using an input–output method, this paper simulates the impacts of the global financial crisisand the decline of exports on China’s economy and employment. With shrinking externaldemand, boosting domestic demand becomes crucial for maintaining economic growth andpromoting employment. Our simulated results indicate that an investment scenario withemployment as a priority can achieve the objective of employment maximization withoutsignificantly reducing growth. Public investment should focus on employment, education,health, housing and social security to rebalance China’s economy so that it can realizesustained and stable economic growth.

Key words: economic stimulus package, employment shock,global financial crisis, input–output method

JEL codes: E24, E27, J21

I. Introduction

The global financial crisis has had a significant impact on China’s economy and employment.It has not only slowed down the speed of China’s economic growth, but also brought greatpressure on urban employment. From 2001 to 2007, job opportunities in the urban labormarket showed an increasing trend and almost reached the balance between labor supplyand demand by the end of 2007. However, job opportunities declined in the fourth quarterof 2008 as a result of the global financial crisis (Cai and Wang, 2009a). The shrinking offoreign trade under the impact of the global financial crisis forced export-oriented enterprisesin coastal areas to cut down or cease their production, leading to a sharp decline of job

* Fang Cai, Director and Professor, Institute of Population and Labor Economics, Chinese Academy ofSocial Sciences, Beijing, China. Email: [email protected]; Dewen Wang, Professor, Institute ofPopulation and Labor Economics, Chinese Academy of Social Sciences, Beijing, China. Email: [email protected]; Huachu Zhang, Professor, College of Economics and Management, South China Normal University,Guangzhou, China. Email: [email protected].

mailto:[email protected]

mailto:[email protected]

34 Fang Cai et al. / 33 – 46, Vol. 18, No. 1, 2010


opportunities. Among unemployed workers, rural migrant workers suffered the most andmillions have had to return home after losing their jobs (Wang, 2009).

The Chinese Government launched a US$586bn (RMB4tn) economic stimulus packageand adopted a series of policy measures to cope with the severe external shocks and tomaintain economic growth, stimulate domestic demand, adjust the economic structure andimprove people’s livelihood.

This paper uses an input–output method to simulate the shocks of export decline andthe impacts of China’s economic stimulus package on its economy and employment.

The rest of the paper is organized as follows. Section II describes China’s economicand employment situation. Section III simulates the shocks of export decline on China’seconomic growth and employment. Section IV explores the effects of different stimuluspackage investment scenarios on economic growth and employment. Section V concludesthe paper and provides some policy suggestions.

II. China’s Economy and Employment

1. Trend of China’s Economic GrowthChina’s economy has maintained rapid growth since 2000. As shown in Figure 1, its growthstarted to soar from the fourth quarter of 2002 and reached a peak at 13.0 percent in thefourth quarter of 2007, but it lost momentum by the end 2008 and dropped to 6.1 percent inthe first quarter of 2009 (NBS, 2009). This change can be attributed to two factors. In thesecond half of 2007, rapid growth generated an electricity and energy supply shortage, andthe prices of raw materials, energy and agricultural products went up, leading to an increasein the consumer price level. Some scholars argue that China’s economy was facing anoverheating issue (Study Group of Chinese Academy of Social Sciences, 2007). In the firsthalf of 2008, the Chinese Government undertook contractionary monetary and fiscal policies,strictly controlling the scale of investment and credit to cool down the overheated economicgrowth. In the second half of 2008, the emergence of the global financial crisis hit China’sexport sector heavily. The shrinking of external demand caused further economic slowdown.In the first quarter of 2009, the growth rate was only 6.1 percent, a drop of 4.5 percentagepoints compared to the same period of 2008. The growth rebound to 7.9 percent in thesecond quarter of 2009, but it is still far below the predicted trend of growth rates (seeFigure 1).

The IMF (2009) and the World Bank (2009) predict that in 2009, given the shock of theglobal financial crisis, the Chinese economy will maintain a growth rate of between 6.5 and7.5 percent. After its performance in the second quarter of 2009, it is generally believed thatChina will have no problem achieving its target of 8 percent growth. The purchasing managers

35Employment Effectiveness of China’s Economic Stimulus Package


index (PMI) for manufacturing has increased in 2009, indicative of economic recovery.1

The average PMI remained at around 55 percent in the first half of 2008, but droppedsharply by 12.4 percentage points between September and November in 2008 and fell to 38.8 percent in November 2008. It started to rise at the beginning of 2009 and reached 53.1percent in May 2009 (CFLP, 2009).

However, the foreign trade environment is still challenging. First, the export market’sprospects are not looking optimistic. China’s foreign trade underwent negative growthfrom November 2008, and has worsened since then. Processing trade makes up a largeportion of total exports. The decline of imports has also had a significant impact onmanufacturing. Second, the global economy is still in recession. The IMF (2009) forecaststhat the world economy will contract by 1.4 percent in 2009. This would be the first occurrenceof negative growth in 60 years. The IMF in April 2009 predicts that developed countries willslide back into deep recession, with a decrease of 3.8 percent growth rate in 2009. Under thecurrent circumstances, global trade is likely to be severely reduced. Third, income and price

1 The purchasing managers index (PMI) for the manufacturing sector is collected based on five differentfields: production level, new orders from customers, speed of supplier deliveries, inventories andemployment level. This index is important for detecting inflationary pressure on and economic activityof the manufacturing sector. If the PMI is higher than 50 percent, it implies that the manufacturingsector is booming. If the PMI is lower than 50 percent, it means that the manufacturing sector is underrecession.

Figure 1. Trend of Economic Growth in China,First Quarter 1998 to First Quarter 2009

Gro

wth

rate

s (%

)

TimeSource: NBS (2009).Notes: Q1, first quarter; Q3, third quarter.

4

6

8

10

12

1419

98Q

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2009

Q1

Real growth rate Predicted growth rate



elasticities of China’s export are 4.7 and –0.5, respectively; that is, a 1-percent decrease inforeign income will cause a 4.7-percent decline in exports, and a 1-percent decrease inexport price will cause a 0.5-percent increase of exports, holding other things constant(Yao, 2009). Because the absolute value of income elasticity is larger than that of priceelasticity, the income effect from the economic slowdown in developed countries will be farlarger than the price effect, especially as China is facing the pressure of RMB appreciation.

From the perspective of maintaining sustained economic growth, China needs to fun-damentally alter the manner in which it achieves its growth so as to mitigate external shocksand risks. At present, China is both the global manufacturing center and one of the biggestexporters of manufacturing products. In 2007, China’s foreign trade made up 66.8 percent ofGDP, of which exports accounted for 37.5 percent of GDP (NBS, 2009). If the global economyexperiences a long-term slump, China will not enjoy the favorable environment of export-oriented growth any more. In the past, the export-led growth method had not only resultedin overinvestment in the export sector, but also induced the instability of the domesticfinancial system as a result of difficulties in loan payments when enterprises have facedexport decline (Palley, 2006). The shift from the traditional export-led growth to domesticdemand-oriented growth will be a strategic change for China, enabling China to rebalanceits economy between foreign trade and domestic demand. This change will be a tough andlong-term process. During this process, deepening investment and distribution reform canprovide an institutional basis to achieve such a strategic transformation. As full employ-ment plays a crucial role in improving income distribution and stimulating domesticconsumption, the issue of employment should be a policy priority.

2. Change of Employment Situation

With rapid economic growth, China’s labor market has become relatively loose. In particular,there was a shortage of rural migrant workers from 2003 to 2007. During the same period,annual newly added employment in cities increased from 8.4 to 10.4 million (NBS, 2008), andurban unemployment rates continued to decline. The surveyed urban unemployment ratesrose from 1997, reaching a peak of 7.6 percent in 2000, but declined afterwards (Cai andWang, 2009b). Thanks to demographic change, the decreasing supply of working agepopulation reduced the potential pressure on the urban labor market. At the same time, withrapid economic growth and labor market development, the number of total employedincreased with the reduction of rural surplus labor, and the surveyed urban unemploymentrates declined. In 2007, the surveyed unemployment rate was 5.3 percent. If this trend weremaintained, the unemployment rates for 2008 and 2009 should be below 5 percent (Cai andWang, 2009b). However, with the shock of the global financial crisis, there were approximately



20 million rural migrant workers who returned home as a result of losing their jobs. TheNational Bureau of Statistics reported that there were 11 million rural migrant workers incities who were still looking for jobs after the Spring Festival of 2009, which intensified thepressure on the urban labor market (Wang, 2009).

China’s labor market is a dual one. The agricultural sector has traditionally functionedas a “labor pool” for non-agricultural sectors: as non-agricultural employment increasesand agricultural employment falls. As shown in Figure 2, with the fluctuation of the businesscycle, employment elasticity in the agricultural sector tends to increase when the economyslows down or is in recession. In contrast, it tends to drop when the economy starts toexpand or is booming. Since 2000, the large expansion of non-agricultural sectors hascreated millions of job opportunities that have attracted more agricultural labor into non-agricultural sectors, and caused a decline in the proportion of agricultural employment, to40.8 percent in 2007 (NBS, 2009). The economic recession caused by the global financialcrisis will definitely reduce non-agricultural employment opportunities, and force somerural migrant workers to return home and enter the agricultural sector, hindering the pace ofrural labor force transfer. However, Wang et al. (2009) show that only 3–5 percent of returnedrural migrants engage in farm work or look for jobs locally. Most of them have to re-migrate tocities to seek non-agricultural employment opportunities. Many rural migrant workers facedifficulties in finding jobs, and confronted with employment instability and wage reduction.Therefore, when there are external shocks to the economy, maintaining economic stabilityand creating more employment opportunities are crucial macroeconomic policy tasks.

Figure 2. Business Cycle and Employment Elasticity,1978–2007

Em

ploy

men

t el

astic

itie

s

Eco

nom

ic g

row

th r

ate

Source: NBS (2008).

-1.5

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Agricultural elasticity Non-agricultural elasticity

Predicted GDP growth rate



III. Quantitative Simulation of Export Shocks

Trade is an important channel for a country or region to allocate resources in the globalcontext and maintain long-term economic growth. However, economic globalization andtrade liberalization is not a risk-free process. Integration into the world trading system for acountry strengthens the connection between domestic and international markets, but italso delivers external risks and uncertainties into the domestic market through the tradechannel, thus exacerbating the volatility of the domestic market. The magnitude of shockswill largely depend on trade dependence, export income and price elasticities, as well asdomestic consumption. Both the ratio of trade to GDP and export income elasticity in Chinaare extremely high, indicating that the Chinese economy is exposed to a high risk of externalshocks. Meanwhile, the proportion of domestic consumption in GDP is quite low, and,hence, cannot act as an economic stabilizer. China has to rely on the short-term plan tostimulate consumption to maintain its growth momentum.

As a major engine of growth, the shrinking of exports can directly lead to economicslowdown. Moreover, it can also have various impacts on the import demand for processingtrade, investment and consumption. Therefore, the export decline has a multiplier effect oneconomic growth. That is, the decline in net exports can directly reduce GDP, and furtherlead to decreases in GDP growth through consumption and investment channels. In acountry with extremely high trade dependence, the multiplier effect of exports on its economywill be more significant.

To assess the shock of the global financial crisis on China’s economy and employment,the present paper adopts an input–output method to conduct a quantitative simulation.This method was first introduced by Leontief, an American economist, in the 1950s and1960s to analyze economic activity at the national level. The analysis is combined witheconomic theory and statistical data by using the input–output matrix approach based onthe assumption that the flow of goods and services between various economic sectors isstable (Leontief, 1966). The national economy is dealt with as being interdependent in theinput–output table. The movement of goods and services across sectors from theperspective of both production inputs and distribution utilization are examined, and economicand quantitative relationships between sectors given technological conditions are identified.Assuming constant input–output coefficients, this method can be used to assess or simulatethe impacts of changes in specific sectors on other sectors or on the whole economy,including direct and indirect effects.

In the structural decomposition model applying the input–output table, the production-induced matrix is often composed using an import coefficient matrix, an intermediate inputcoefficient matrix, a consumption matrix of final demand, an investment matrix and an export

https://www.researchgate.net/publication/253961260_Input-Output_Economics?el=1_x_8&enrichId=rgreq-d4d45bf194cad5be19c81cbddd1a207a-XXX&enrichSource=Y292ZXJQYWdlOzQ2NTM4NzEyO0FTOjIxNTc1MTQyNTMwMjUzMUAxNDI4NDUwNTU2OTMz



matrix (Zhang et al., 2009). Constructing a linkage between the production-induced matrixand the employment matrix, we can simulate the impacts of change in exports on employment.According to Leontief’s theory, the input–output method is an extension of the classicaleconomic theory that the economic system is interdependent, which can be applied in theanalysis of industrial structure, production and employment, cost and price, economicplan, and foreign trade. However, this method is in nature a static analysis because of theassumption of constant input–output coefficients. In the short term, it is difficult for firmsto carry out factor adjustment instantly, so this method can only be used to conduct staticsimulation. However, in the long run, adopting this method is unsuitable because therelative changes in prices induce firms to make adjustments, including with factorsubstitution, economic restructuring and upgrading.

The actual decline of exports is an outcome of both domestic policy implementa-tion and external demand shrinking. Therefore, we cannot attribute the actual declinein exports to only the reduction in external demand. We need to eliminate the influenceof changes in the general trend. This paper uses data relating to changes in exporttrends from 2000 to 2007, simulates the value of exports for 2008, and calculates thereduced magnitude of exports by comparing the actual value with the predicted one.The GDP deflator is used to calculate the adjustment in price changes. Because theexports of products and service are different, this paper runs the linear regression forthem separately. As shown in Figure 3, 2008 exports were approximately 8.8 percentlower than the predicted value. In 2009, the shock of the global financial crisis on theChinese economy and employment will be weakened if the exports growth rate canreach 8 percent. Assuming a similar economic structure exists between 2005 and 2008,we can then simulate the impacts of the export decline on China’s economic sectors. Interms of trade, we can categorize 42 industries into two types of trade-related industries,the commodity trade sector and the service trade sector, and then apply the input–output method to carry out quantitative simulation.

Using the input–output table for 42 industries in 2005, we simulated the impacts of theexport decline on the Chinese economy and employment by sector. To obtain the sector-matched employment data, we use the 2005 1-percent population sample of 99 industriesand the China Statistical Yearbook of 2006 to calculate employment figures for eachsector. For simplicity, we only report the simulated results of 11 sectors in Table 1. In2008, the sharp decline in exports caused a reduction in non-agricultural employment by13.45 million,2 equivalent to 3.0 percent of non-agricultural employment in 2007. The largest

2 The reduction in non-agricultural employment equals total employment reduction minus agriculturalemployment reduction.



reduction in non-agricultural employment is from the manufacturing industry, amountingto 8.07 million. Although agricultural employment has also been affected by the decline inexports, there is no significant impact on job opportunities in the agricultural sector becauseit still plays the role of “labor pool.” However, rural income is seriously affected.

According to the National Bureau of Statistics, China’s 2008 GDP totaled RMB30.1tn,with a growth rate of 9.0 percent. In Table 1, the reduction in GDP is estimated asRMB2.66tn, equivalent to 8.9 percent of GDP in 2008. The Ministry of Commerce proposedthat if growth in GDP could be maintained at the targeted 8 percent in 2009, the growth rateof trade could also be maintained at 8 percent. If exports drop by 7.3 percent compared tothe trend, there will be a reduction in non-agricultural employment of 11.83 million. The sumof non-agricultural job losses in 2008 and 2009 caused by the reduced exports amounts tonearly 25 million. The year 2009 has the largest number of college graduates in history as aresult of higher education expansion. The number of college graduates in 2009 is 6.1 million.However, there were more than 1 million college graduates in 2008 left without jobs. Theannual average of new job opportunities in cities is less than 10 million, so the pressure inthe urban labor market is great.

Figure 3. Actual and Trend of Exports, 2000–2009

Source: NBS (2000–2008).Notes: The exports of goods and services in 2009 are calculated based on a growth rate of 8 percent. The

trend is calculated using a linear regression.

0.0

2.0

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2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Real export Predicted values

Year

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0bn)



IV. Employment Effects and Growth Effects

To mitigate the shocks of the global financial crisis, the Chinese Government has launcheda US$586bn (RMB4tn) economic stimulus plan to be rolled out over 2 years. The governmentwill also offer more incentives for social and private investment, aiming to maintain economicgrowth, stimulate domestic demand, adjust economic structure and improve peoples’livelihood. The planned allocation of RMB4tn investment includes: RMB400bn for housingsecurity construction (mainly for low-rent housing), forest reclamation and coal shantytown transformation; RMB370bn for rural livelihood and infrastructure projects, includingprovision of safe drinking water in rural areas, rural power grid transformation, roadconstruction, marsh gas construction, renovation of dilapidated buildings and nomadicsettlement; RMB1.5tn for infrastructure, including railways, highways, airports, and waterconservancy facilities; RMB150bn for education, health, culture and family planning;RMB210bn for energy, emission reduction and ecological protection; RMB370bn foreconomic restructuring and technology improvement; and RMB1tn for post-earthquakerehabilitation and reconstruction.

Table 1. Impact of Export Decline on the Chinese Economy andEmployment, 2008 and 2009

2008 2009

Industry GDP

reduction

(RMBbn)

Employment

reduction

(million)

GDP

reduction

(RMBbn)

Employment

reduction

(million)

Agriculture 108.6 7.76 94.9 6.78

Mining 110.7 0.55 96.7 0.49

Manufacturing 1997.1 8.07 1743.4 7.05

Electricity, heating and water 111.7 0.28 97.7 0.25

Construction 8.4 0.06 7.3 0.05

Transportation, post and telecommunication 87.4 0.97 77.6 0.86

Information and computers 26.0 0.10 22.9 0.09

Wholesale, retail and catering 65.5 1.97 58.9 1.77

Real estate 21.9 0.34 19.4 0.30

Finance and insurance 31.3 0.16 27.5 0.14

Other services 94.5 0.96 83.6 0.85

Total 2663.1 21.22 2329.9 18.63

Source: Authors’ calculation.



To evaluate the planned allocation of the stimulus investment, this paper offers twoother scenarios of investment allocation: normal allocation and employment priorityallocation to simulate different impacts of investment allocation on economic growth andemployment. The normal investment scenario allocates all funds in terms of the investmentstructure of the 2005 input–output table, which represents the status without the shock ofthe global financial crisis. The employment priority scenario allocates all funds to maximizethe goal of improving access to non-agricultural employment using a linear programmingmethod. As shown in Table 2, the investment structure differs in the different scenarios. Inthe planned allocation scenario, construction accounts for 66.5 percent of the stimulusinvestment, service sectors 16.1 percent and manufacturing only 6.5 percent. In the normalallocation scenario, construction accounts for 44.1 percent, manufacturing 42.6 percent,while service sectors account for less than 10 percent. In the employment priority scenario,57.7 percent of the stimulus investment is invested in public sectors, including education,health, social security and public services, 28.0 percent in the manufacturing sector, andconstruction accounts for only 2.8 percent. Obviously, different investment structures willlead to different impacts on employment and economic growth.

In the input–output table, gross capital formation is used instead of the size ofinvestment. Gross capital formation refers to gross fixed capital formation and inventory.We need to transform the RMB4tn investment into gross capital formation. The averageconvert ratio between gross capital formation and investment is 0.94 between 2002 and

Table 2. Three Scenarios of RMB4tn Investment Allocation

Industry Planned

allocation (%)

Normal

allocation (%)

Employment

priority (%)

Agriculture 6.8 2.3 0.0

Mining 0.0 1.4 3.8

Manufacturing 6.5 42.6 28.0

Electricity, heating and water 4.0 0.0 7.8

Construction 66.5 44.1 2.8

Transportation, post and telecommunication 3.3 2.0 2.9

Information and computers 1.5 0.9 1.1

Wholesale, retail and catering 3.9 2.3 7.7

Real estate 0.0 0.0 4.0

Finance and insurance 0.0 0.0 1.2

Other services 7.5 4.4 40.7

Total 100.0 100.0 100.0




2007; therefore, according to this figure, the RMB4tn investment can be converted toRMB3742.7bn gross capital formation. After deflation due to price changes, the RMB4tninvestment is equivalent to RMB3106.68bn capital formation in 2005 constant prices.

The simulated results for the three scenarios are shown in Figure 4. In the plannedallocation scenario, output reaches RMB8.8tn, generating 51.35 million non-agriculturalemployment opportunities, which is equivalent to 11.0 percent of all non-agriculturalemployment in 2008. In the normal investment scenario, output is RMB8.4tn, generating44.82 million non-agricultural employment opportunities, which is equivalent to 9.6 percentof all non-agricultural employment in 2008. In the employment priority scenario, output isRMB8.1tn, creating 72.36 million non-agricultural employment opportunities, which isequivalent to 15.5 percent of all non-agricultural employment in 2008. It is obvious that thejob creation in the employment priority scenario is the largest, 40.9 percent more than forthe planned allocation scenario and 61.4 percent more than for the normal allocation scenario.In comparison, the planned allocation scenario has the largest output, which is 5.4 percenthigher than the normal allocation scenario, and 9.1 percent higher than the employmentpriority scenario. Therefore, the growth effects are not very different among the threescenarios, but the employment effects in the three scenarios differ significantly.

It is a reasonable action to stimulate domestic demand by taking an expansionary fiscalpolicy when external demand is severely reduced because of a decline in exports and

Figure 4. Three Scenarios of EmploymentEffects and Growth Effects

0

20

40

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80

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GDP increase

Num

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oyed

(m

illio

n)

GD

P (R

MB

1000

tn)

Planned allocation Normal allocation Employment priorityallocation




private investment. As for central government investment, relevant policy measures shouldbe taken to encourage local matching of investment or private investment, moving towardthe investment structure of the employment priority scenario and, finally, to realizingmaximized employment effects.

In practice, the effects of economic growth and employment driven by the stimulusinvestment will not be realized within 1 year, even 2 years or more time. The simulated resultsusing the input–output method assume that all investment can be transformed into grosscapital formation, but it does not take into account the adjustment time. There are time lags inpolicy implementation, investment and construction. Therefore, whether economic recoverycan be achieved with employment growth largely depends on how the adjustment time ofpolicy can be shortened, and on whether policy relevance and efficiency can be enhanced.

Because different industries or enterprises of different sizes have various capital–labor ratios, economic growth caused by different investment structures will lead to differentemployment effects. Domestic demand that relies on fixed-asset investment is investment-led, and can result in a significant growth effect because this type of demand has an effectof industrial linkage, especially for infrastructure and heavy chemical industries, whichhave self-ordering and self-service features. If investment in these fields cannot stimulatecorresponding consumption demand, the expansion of domestic demand will be limited,and economic growth will not be sustainable. For example, according to the estimatedresults in the input–output table, industries with more growth effects generally have lessemployment effects. Therefore, maintaining economic growth without implementing anemployment target will result in economic recovery without employment growth.

Since the 1990s, the main contributors to the non-agricultural employment expansionhave been labor-intensive manufacturing, non-state-owned enterprises, service sectors, andsmall and medium enterprises. Informal employment has also been a major channel absorbingemployment. At present, approximately 30–40 percent of urban workers belong to informalemployment, which accounts for 100 million workers. The informal employment proportion ofrural migrant workers is as high as 70 percent, equating to approximately 60 million workers in2007 (Cai et al., 2009). The informal employment channel cannot benefit directly from a publicinvestment plan, and informal workers have low social security coverage; therefore, they donot enjoy the support of employment assistance from the government.

Economic growth with employment as a priority is the best way to reduce unemploymentand expand employment. At present, labor-intensive industries are transferring from coastalareas to central and western areas. In eastern areas, industrial upgrading will enhance theability to cope with the crisis, and employment to expand, and stability and growth to bemaintained. However, such a process of industrial restructuring and factors of productionreallocation should not be left to run their own course; they should be guided by effective



economic and social policies to produce larger positive effects and minimize the costs ofstructural adjustment.

V. Conclusions

This paper uses the input–output method to simulate the impacts of the global financialcrisis on China’s economic growth and employment. Compared with the estimated trend,the export decline in 2008 reduced the number of non-agricultural workers by 13.45 million.If China’s export growth rate could maintain the same growth rate of 2009 of 8 percent, theemployment pressure would be lessened to a certain extent. With the implementation of theRMB4tn economic stimulus plan, there is no doubt that the expansionary fiscal and monetarypolicies will play an effective role in pushing economic growth and increasing employment.However, the public investment allocation should prioritize the objective of employment.Our simulated results demonstrate that employment effects vary significantly in threescenarios with different investment allocation structures. Among them, the employmentpriority scenario maximizes the objective of employment without significantly reducingoutput. However, time is needed for policy implementation and labor market adjustment,and more attention should be paid to trend of employment.

Public investment should put more emphasis on employment, education, health, socialsecurity and housing in the future. This would assist in the stabilization of individual orhousehold expectations and the expansion of consumption. For example, Roosevelt’s NewDeal led the US economy to a long prosperous period in the 1950s and 1960s throughexpanding education and establishing a social security system after the Great Depressionin the 1930s. According to Cai et al. (2009), by providing either pensions, basic medicalinsurance or unemployment insurance for the 20 percent lowest income urban households,given no changes in their incomes, total consumption spending in urban China wouldincrease by RMB10tn. The effect of stimulation on domestic consumption will be moresignificant if social security schemes can be extended to the countryside. Moreover, theproportion of public input accounts for 80 percent of total education expenditures onaverage in the world, but it is only 46 percent in China (Cai, 2009). The overreliance onhousehold education inputs has suppressed private consumption and resulted in inadequatespending on other goods and services. Therefore, increasing the proportion of publicinputs for education can also stimulate household consumption.

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(Edited by Zhinan Zhang)

http://www.chinawuliu.com.cn/cflp/tjsj/pmi16.html

http://gov.acmr.cn/

https://www.researchgate.net/publication/253961260_Input-Output_Economics?el=1_x_8&enrichId=rgreq-d4d45bf194cad5be19c81cbddd1a207a-XXX&enrichSource=Y292ZXJQYWdlOzQ2NTM4NzEyO0FTOjIxNTc1MTQyNTMwMjUzMUAxNDI4NDUwNTU2OTMz

https://www.researchgate.net/publication/293071224_Analysis_and_forecast_of_China's_economic_situation_2009-2010?el=1_x_8&enrichId=rgreq-d4d45bf194cad5be19c81cbddd1a207a-XXX&enrichSource=Y292ZXJQYWdlOzQ2NTM4NzEyO0FTOjIxNTc1MTQyNTMwMjUzMUAxNDI4NDUwNTU2OTMz

https://www.researchgate.net/publication/293071224_Analysis_and_forecast_of_China's_economic_situation_2009-2010?el=1_x_8&enrichId=rgreq-d4d45bf194cad5be19c81cbddd1a207a-XXX&enrichSource=Y292ZXJQYWdlOzQ2NTM4NzEyO0FTOjIxNTc1MTQyNTMwMjUzMUAxNDI4NDUwNTU2OTMz

Employment Effectiveness of China's Economic Stimulus Package

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