Policy implications of informality in Chinese labor market

In this study, the informality of labor market in China is explored. We follow the evidences to analyze the relation between informality, structural economic changes and large economic shocks. While the residency policies of the late 1950's led drastic problems in labor market and made migrant workers a significant part of informal employment, we claim that the aggressive growth policies are the major cause of structural breaks in labor market.In order to achieve faster growth rates by fostering the international trade, the government has accelerated the industrialization process. In this regard, the fast urbanization and regulation of the internal migration are the main effects of these structural changes on markets as well as the causes of the informality in labor market. The 2008 crisis has been enforcing China to change existing economic policies, including the ones related labor market. Our analysis leads us to discuss potential policy changes that require rearrangements of government's regulations. We conclude that regulations should be less in number but should be strongly supported by efficient institutions.