Trade unionism and the welfare of rural-urban migrant workers in China

Alison Booth, Xin Meng, Jilu Zhang 13 December 2020

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The growth of insecure or precarious work has been well-documented, and the OECD notes that “the rights and protections of vulnerable workers falling outside the traditional remit of labour law and social protection should be strengthened” (OECD 2019: 15). Some commentators also note that trade unions play a useful role in reducing worker exploitation and counteracting the monopoly power of the firm (McNicholas et al. 2020).

While examples of precarious work can be found all over the globe, a particularly interesting example is provided by Chinese rural-urban migrants. Over the past few decades, China’s rapid industrialisation has been accompanied by mass migration as workers move from rural areas to cities in search of better pay. But in this large-scale rural-urban migration, the rights of migrants have not kept pace with those of urban workers. Migrants have been essentially treated as guest workers with few rights and limited access to social services and social insurance coverage. Their children were not entitled to attend urban schools, and the majority of them were not entitled to work-injury, unemployment, and health insurances or pension. In addition, migrants were discriminated against with regard to type of job, working hours, and hourly earnings (Meng and Zhang 2001, Frijters et al. 2011) simply because they were born in rural areas. This lack of protection has had consequences, as we shall see. 

China’s economic reform period from 1978 gradually shifted its economy from a centrally planned to a more decentralised market-orientated system. Although in 2008 the new Labour Contract Law (LCL) established formal legal channels to protect workers’ rights, unfortunately the legal system in China is still weak, and laws and regulations are often not enforced, particularly if they relate to marginalised workers. 

Owing to the lack of formal complaint channels, more and more migrant workers began to take extreme action in response to their poor working conditions.1 After spontaneous strikes and protests expressing conflict between labour and capital (Traub-Merz 2011), there was growing pressure – from both government and society at large – on the All-China Federation of Trade Unions (ACFTU) to protect workers (particularly migrant workers) and institutionalise conflict resolution.

Chinese trade unionism and the emergence of ‘paper unions’

The ACFTU – the only legal trade union in China – employs a hierarchical system to manage its sub-branches. At the top is the national headquarters following the leadership of the Chinese Communist Party (CCP). Below, there are 31 provincial sub-unions and ten industry sub-unions. At the bottom are the firm-level or workplace-level unions. 

In the early 2000s, the ACFTU requested that firms and workplaces set up local unions, gradually incorporate more independent grass-roots unions into the system, and learn to work with grass-roots unions.2 Some firms/workplaces actively responded to the ACFTU’s request. However, others passively followed orders to form the union but did not organise any activities, and these are commonly referred to as ‘paper unions’ (Liu 2010, Liu and Li 2014).

Against this background, in Booth et al. (2020) we examine the extent to which the welfare of Chinese rural-urban migrants has been affected by the various forms of trade union presence characterising Chinese industrial relations over the period 2012 to 2016. In particular, we investigate if active (or ‘real’) unions and ‘paper’ unions have had a differential effect on protecting migrant workers - the major Chinese industrial workforce. Most existing studies use firm-level or provincial-level data while some use cross-sectional individual-level data and their findings are mixed with regard to union influence.3 Ours is the first to use a unique longitudinal representative survey of migrants – the 2012 to 2016 waves of the Rural-Urban Migration Survey (RUMiC), with its remarkably rich set of covariates, including a new module of trade union questions. 

The Chinese union-funding system 

In western countries, if a large proportion of workers ‘free ride’ on union membership, it is difficult for unions to exist as successful entities. Such a ‘free-rider’ problem is often mitigated by providing excludable goods to union members (Freeman and Medoff 1984, Booth, 1995). However, in China this potential problem is mitigated by the union-funding system. The 2% payroll tax is the major source of funding for firm-level unions in China (Ge 2007).4 As the tax base of the 2% payroll tax is for all workers in a unionised firm, firm-level unions can exist even without union members. Consequently, firm-level unions should have little incentive to make their services exclusive to union members, nor do they have financial incentives to discriminate against covered non-members. Thus, ex ante we expect little or no welfare differences between covered non-members and union members. 

However, we might still observe a union-member welfare premium for the following reasons. First, union activities may be semi-exclusive to union members, who are more likely to be informed about them. These activities may help migrant workers accumulate skills and thus improve their welfare. Second, observed welfare differences between covered non-member and union members may reflect a higher likelihood that observed members are covered by active unions which do a better job in improving welfare compared to inactive unions. Third, union members may be more active within the firm and have more opportunities to be promoted. Finally, union leaders may have non-financial considerations to treat members differentially. For example, unions with more members may be more powerful. 

Measuring union status in our data

Based on two sequential questions on union status, we divide our sample into three groups: (i) those in non-unionised workplaces, (ii) those in unionised workplace but not a union member, (iii) and union members in unionised workplaces.4 There were also additional questions that we used to proxy for ‘paper unions’. In our main analysis we defined ‘paper unions’ as those not providing help to workers.5

We find that, among all workers in unionised workplaces (a total of 4,278 individuals), around 26% are in ‘paper unions’ and the remainder (74%) are in real unions. Of these, 56% are non- members and 44% are members. Also, of all workers in workplaces with ‘paper unions’, the vast majority are non-members (81%).

The effect of workplace unionism on worker welfare

Our regression analyses indicate that rural-urban migrant workers benefit from working in a union-covered workplace, but only if the union is active. Firms with inactive ‘paper’ unions do not protect workers beyond what the Labour Law stipulates.6

Controlling for individual fixed effects, we find the following: Relative to workers from workplaces without union presence or with inactive unions, both union-covered non-members and union members in workplaces with active unions earn higher monthly income, are more likely to have a written contract, be covered by social insurances, receive fringe benefits, express work-related grievances through official channels, feel more satisfied with their lives, and are less likely to have mental health problems.

As already noted, unions in China do not have incentives to treat covered non-members and union members differently. Yet we observe consistently larger premia for union members on wages, insurance-coverage, and fringe benefits when comparing union members and union-covered non-members. The membership premium is particularly remarkable for wages, where the advantage for the members is twice as large as for the non-members. 

References

Anwar, S and S Sun (2015), “Unionisation and firm performance in China’s manufacturing industries”, Journal of Labor Research 36(1): 78-102.

Booth, A L (1995), The economics of the trade union, Cambridge: Cambridge University Press.

Booth, A L, R B Freeman, X Meng and J Zhang (2020), “Trade Unions and the Welfare of Rural-Urban Migrant Workers in China”, CEPR Discussion Paper 15350.

Budd, J W, W Chi, Y Wang and Q Xie (2014), “What do unions in China do? Provincial-level evidence on wages, employment, productivity, and economic output”, Journal of Labor Research 35(2): 185-204. 

Chan, C K-C (2013), “Contesting Class Organization: Migrant Workers’ Strikes in China's Pearl River Delta, 1978–2010", International Labor and Working-Class History 83: 112-136.

Freeman, R B and J Medoff (1984), What do unions do?, New York: Basic Book.

Frijters, P, X Meng and B Resosudarmo (2011), “The Effects of Institutions on Migrant Wages in China and Indonesia”, Rising China: Global challenges and opportunities, pp.245-283, Canberra: ANU ePress.

Ge, Y (2007), “What do unions do in China?”, Working Paper. 

Ge, Y (2014), “Do Chinese unions have ‘real’ effects on employee compensation?”, Contemporary Economic Policy 32(1): 187–202.

Gunderson, M, B Y Lee and H Wang (2016), “Union pay premium in China: an individual-level analysis”, International Journal of Manpower 37(4): 606-627.

Hu, E, M Zhang, H Shan, L Zhang and Y Yue (2018), “Job satisfaction and union participation in China”, Employee Relations 40(6): 964-980.

Liu, M (2010), “Union organizing in China: still a monolithic labor movement?”, ILR Review 64(1): 30-52.

Liu, M and C Li (2014), “Environment Pressures, Managerial Industrial Relations Ideologies and Unionization in Chinese Enterprises”, British Journal of Industrial Relations 52(1): 82-111.

Lu, Y, Z Tao and Y Wang (2010), “Union effects on performance and employment relations: Evidence from China”, China Economic Review 21(1): 202-210.

McNicholas, C, L Rhinehart, M Poydock, H Shierholz and D Perez (2020), “Why unions are good for workers—especially in a crisis like COVID-19: 12 policies that would boost worker rights, safety, and wages”. Economic Policy Institute Report. 

Meng, X and J Zhang (2001), “The two-tier labor market in urban China: occupational segregation and wage differentials between urban residents and rural migrants in Shanghai”, Journal of Comparative Economics 29(3): 485-504.

Metcalf, D and J Li (2006), “Chinese unions: An Alice in wonderland”, Advances in Industrial and Labor Relations 15: 213-268.

Newman, A, B Cooper, P Holland, Q Miao and J Teicher (2019), “How do industrial relations climate and union instrumentality enhance employee performance? The mediating effects of perceived job security and trust in management”, Human Resource Management 58(1): 35-44.

OECD (2019), The Future of Work: OECD Employment Outlook.

Song, Y, J Yang and Q Yang (2016), “Do firms' political connections depress the union wage effect? Evidence from China”, China Economic Review 38: 183-198.

Traub-Merz, R (2011), “All China federation of trade unions: Structure, functions and the challenge of collective bargaining”, International Labour Office Working Paper Series No. 13, Berlin: Global Labour University.

Wang, W and D Lien (2018), “Union membership, union-coverage and wage dispersion of rural migrants: Evidence from Suzhou industrial sector”, China Economic Review 49: 96-113.

Yao, Y and N Zhong (2013), “Unions and workers’ welfare in Chinese firms”, Journal of Labor Economics 31(3): 633-667.

Endnotes

1 Migrant workers started to strike as early as in 1994 and continued sporadically throughout the 1990s and 2000s (Chan 2013). In 2010, the labour strikes in Honda Factory and the 11 suicides of migrant workers in Foxcon had attracted wide discussions among the general population about the working conditions of migrant workers. 

2 ACFTU starts to request private firms and workplaces to set up unions in 2000 due to loss in funding caused by the reform of State-Owned-Enterprises (Liu 2010). The process sped up after the passing of ‘Provisions on the Work of Enterprise Trade Unions (for Trial Implementation)’ by its national executive meeting in 2006. English translation of the ‘Provisions on the Work of Enterprise Trade Unions (for Trial Implementation)’ can be found here

3 Relevant studies include Ge (2007, 2014), Lu et al. (2010), Yao and Zhong (2013), Budd et al. (2014), Anwar and Sun (2015), Gunderson et al. (2016), Song et al. (2016), Wang and Lien (2018), Hu et al. (2018), Newman et al. (2019).

4 Respondents were asked whether their workplace has a trade union and, for those answering ‘yes’, they were further asked ‘Are you a union member?’.

5 Robustness checks used a definition combining information on whether or not unions provide help to workers and how union leaders were appointed. Our main results were unchanged.

6 The Labour Law requires employers to sign a contract with every employee, and to pay their employees no less than the city-level minimum hourly wage. The law also requires employers to provide adequate social insurance and welfare to their employees The English translation of the 1994 Labour Law can be found here.

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Topics:  Industrial organisation Labour markets

Tags:  unions, trade unions, unionisation, China, migrant worker, welfare

Professor of Economics at the Australian National University, CEPR Research Fellow

Professor, Research School of Economics, The Australian National University

Research Fellow, Centre for Social Research & Methods, Australian National University

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