China's Urban Unemployment Not a Good Gauge of the Macro Cycle

China's urban unemployment rate is a poor macro indicator due to structural 'shock absorbers' like rural migration and flexible employment that mask labor market slack. This rigidity weakens monetary policy transmission and contributes to persistent disinflationary pressures.

Key Takeaways

• 1.China's urban surveyed unemployment rate has a significantly weaker relationship with the macro cycle than in developed economies, leading to a breakdown of Okun's Law.
• 2.China uses a 'shock absorption' system—including urban-rural dual systems and flexible employment—to manage economic fluctuations rather than allowing spikes in headline unemployment.
• 3.Labour market rigidity in China weakens the impact of monetary policy on employment and amplifies cyclical imbalances like excess capacity and disinflation.

Table of Contents

• Authors
• Contact
• Weak labour-macro linkage
• Labour market's 'shock absorption' mechanism
• Implications for macro policies
• Appendix
• Empirical evidence of labour-macro linkages
• Important Notice

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