Measuring Industry Level Employment, Output, and Labor Productivity in the Chinese Economy, 1987-2008

This paper introduces the procedures of constructing the first version of China Industrial Productivity Database (CIP Round 1.0), a first of its kind that covers output and employment indicators of 33 industries for the period 1987-2008. At this stage the CIP Project does not attempt to challenge the official output estimates for the aggregate and major sectoral levels. However, outstanding methodological and data issues are discussed which has important implications for adjusting official estimates at the aggregate level at later stages. The paper also conducts a quality check aiming to invite constructive comments and suggestions. Analytical measures using the data show that the Chinese economy achieved nearly a fourfold growth in labor productivity over this period, averaging 6.6% per annum. While the “post and telecommunication” service and “transportation equipment manufacturing” industries experienced super-fast labor productivity growth (16.3% and 15.1%), the “mining” and “petroleum refinery” industries experiencing the slowest or even negative labor productivity growth (1.6% and -1.9%). China benefited from a positive “labor reallocation effect” alongside the reforms in the early 1990s. But the effect turned negative following the Asian financial crisis in 1997-98 and its deflationary aftermath, before it became positive again after China's WTO entry in 2001. A quality check suggests that after controlling for the per capita real PPP GDP and labor participation rate, China's labor productivity per hour appears to be 11 percent higher than that of Japan. Given that Japan's labor productivity was 20 to 28 percent higher than that of Taiwan and South Korea, which is plausible, it is reasonable to argue that China's official GDP estimates may have to some extent exaggerated its real GDP