Factors Affecting Income of Flexible Workers in China: History
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He Yang
,
Changan Li
,
Zhaoxing Sun

Numerous workers have adopted the flexible working approach due to its accommodating and job-sharing features, which play a key role in easing the employment pressure and maintaining socio-economic sustainability in China. It was found that, firstly, while the feature of flexible employment may be very different from formal employment, its relationship with work experience and income is as significantly correlated as it is for formal employment with a rise–fall, inverted U-shaped trend, but the return on work experience is lower than the employment level in the labor market. Secondly, there is an income gap between genders, especially in physical labor-intensive forms of flexible work; women can gradually narrow the gender income gap through continuous learning. Thirdly, the return on work experience in the older age group is lower than that in the youth group of flexible workers, and this may be due to the dynamic evolution of the elimination of existing work experience and the accumulation of new work experience. Fourthly, in contrast with the findings of the labor market as a whole, the trend of work experience return in flexible employment is reversed; the low-income group’s return rate of work experience is higher than that of the high-income group, and it can be seen that flexible employment is conducive to the development of new and young workers.

  • impact
  • flexible workers
  • employment
  • work experience
  • income

1. Introduction

Employment is the most important project for people’s livelihood, which is a barometer reflecting the nation’s socio-economic sustainability and a stabilizing force for social harmony [1]. Flexible employment is an indispensable part of employment, and it makes necessary contributions to the sustainable development of society. The attainment of sustainable development is primarily attributed to high-level productivity, an efficient sectoral employment structure, flexible employment conditions, and low levels of working poverty [2][3][4]. China is still in the process of economic recovery from COVID-19. We are simultaneously witnessing a steady increase in college graduates, according to statistics from the Ministry of Education. The number of college graduates exceeded 10 million individuals in 2023, reaching an unprecedented total and further intensifying the expansion of the labor supply. In light of this compounded scenario involving formal employment contraction alongside these circumstances, flexible employment has arisen as an effective means for individuals to secure both an income and job prospects under the prevailing conditions. Moreover, its inherent characteristics, such as extensive flexibility and freedom, have increasingly enticed recent college graduates into embracing this form of work engagement. This is predominantly concentrated within China’s low-end service industry, which is characterized by ample capacity coupled with low entry barriers, facilitating the absorption of substantial labor resources, so it helps to ease the employment pressure and sustain the economy.
Flexible employment, which is distinguished from traditional employment rooted in industrialization and the modern factory system, encompasses various forms, such as labor dispatch, self-employed households, and emerging employment models [5]. The Chinese government has consistently emphasized the need to bolster support for flexible employment and further its development in both 2015 and 2016 [6]. By 2021, flexible employment constituted 55.68% of China’s overall enterprise employment mode [7]. In 2022, out of the total workforce of 780 million employees in China, approximately 200 million people were engaged in flexible work arrangements, accounting for over a quarter of the entire workforce. With its continuous expansion in scale, flexible employment is increasingly becoming a prominent form of work favored by labor suppliers and demanders alike within the job market. Its high flexibility regarding working hours and tasks enables workers to optimally leverage their talents while earning desirable incomes; however, it may also lack specialization opportunities, systematic training programs, and predictable career prospects. It is currently concentrated primarily within low-end service industries in China, with mundane and repetitive tasks, and there are often significant disparities among the income levels of flexible workers.

2. The Concept and Role of Flexible Employment

Flexible employment is a multifaceted concept that undergoes significant variations due to diverse economic backgrounds, institutional factors, and social transformations across countries. Consequently, people’s perceptions and research on flexible employment have evolved considerably. In the early 1970s, informal employment gained prominence as a significant form of work in developing nations, propelled by the advocacy of the International Labor Organization (ILO), creating numerous job opportunities [8]. The global exploration of flexible employment began with the ILO introducing the “informal sector” and “informal employment”. In the World Employment Plan, which saw employment as pivotal for development, the ILO outlined characteristics of the informal sector: low entry barriers, local resources, small-scale, labor-intensive activities using adaptive technologies. It stressed access to technology beyond formal education and participation in unregulated markets [9]. Acknowledging the importance of the informal sector in the employment landscape set the stage for subsequent definitions of both the informal sector and informal employment. Additionally, it emphasized the role of governments in fostering its growth and support.
The informal sector comprises workers linked with poverty, unemployment, and low productivity, consistently embodying a low-income, low-tech economic entity positioned between the modern urban and traditional agricultural sectors. It serves as a crucial source of employment for underemployed or unemployed individuals in both urban and rural settings. Its scope is broad, encompassing marginal socio-economic activities operating outside legal jurisdiction and even involving illegal income generation [10]. In developing countries, the informal sector engaged in the production and distribution of units exhibits characteristics, such as disorganization, a lack of structure, low levels of organizational or production capacity, and meager wages [11]. In 1993, the 15th International Labour Statistics Conference (ICLS) set a resolution to create a global standard definition for the “informal sector” in employment statistics. This definition emphasizes inclusive entities engaged in production and labor services. It is marked by limited hierarchical structures and small-scale operations, lacking distinct divisions between laborers and capitalists. The informal sector’s workforce includes those in informal, own-account enterprises or employed by informal employers during specific reference periods [12].
In 1995, the World Bank introduced the concepts of “the formal sector” and “the informal sector”, thereby establishing a framework that distinguishes between these two economic sectors. The formal sector was defined as encompassing employees who receive monetary wages and engage in non-agricultural enterprises, while all the other workers were considered part of the informal sector [13]. As informal employment continued to grow, the ILO adopted “the informal economy” as a broader term to describe this group [14]. However, illegal and criminal activities, such as begging and drug trafficking, were excluded from the scope of informal employment [15]. In its World Employment Report in 1998–1999, the ILO further categorized the informal sector into three groups: small or micro businesses, family businesses, and independent service workers or freelancers [16]. In 2003, during its 17th ICLS, the ILO emphasized that legal labor relationships may not cover the actual labor relationships of informal workers lacking legal protection. Therefore, defining informal employment should consider factors such as the type of labor unit and the nature of work. This framework has since been widely adopted by countries worldwide [17]. Attention toward employment statuses and welfare has evolved to encompass both formal sectors and various facets of informality, including family-based situations. In China, flexible employment is a prominent concept with an official definition that spans diverse forms distinct from traditional ones. It is established within modern factory systems, considering working time arrangements, labor dynamics, income patterns, and workplace settings. China’s definition of flexible employment does not only cover unguaranteed and unstable informal jobs but also includes flexible yet guaranteed and stable positions within the formal employment sector [18].
According to the dual labor market theory, the urban economy comprises a formal sector and an informal sector [19]. In contrast to the formal sector, the working conditions in the informal sector are not regulated adequately, leaving workers at a disadvantage due to the lack of labor protection measures [20]. The informal labor market exhibits heterogeneity. Analyzing formal workers, informal workers, and those out of the labor market reveals the dual structure of voluntary and involuntary employment within the informal sector. This characterization better describes the characteristics of urban labor markets where more than 50% of developed countries’ workforce is engaged in informal work [21]. Macroscale data analysis on changes in the US labor market after the 1990s indicates that the continuous expansion of the service industry plays a significant role in fostering flexible employment opportunities [22]. Income levels in the informal sector are considerably lower compared to those in the formal employment sectors, revealing that informal work plays a crucial role in ensuring the subsistence of impoverished individuals [23][24]. Informal employment has become one of the primary patterns of employment across various countries and regions [25]. Flexible employment arises from competitive dynamics within developing countries’ labor markets [22][26] and possesses unique features; although it may not offer benefits that are comparable to formal employment options, it still represents an improvement over the unemployment experiences from previous periods [27][28][29]. Flexible employment is referred to as “the bottom” and reflects “easy to entry” activities [30]. Scholars have noted a strong path dependence among flexible workers, where individuals’ past employment experiences significantly shape their current and future choices, irrespective of the advantages or disadvantages. As a result, those presently engaged in flexible employment are more inclined to continue pursuing such opportunities due to the lasting impact and inertia stemming from their prior experiences [31][32]. Demographic characteristics can also have indirect impacts on the choice of flexible workers by influencing their subjective attitudes, values, and employment confidence [33].
In China, flexible employment is frequently equated with informal employment, and in this research, the researchers treat them as interchangeable. China’s definition of flexible employment is expansive and covers multiple sectors. During the 1990s economic reform, numerous rural migrants moving to cities could not secure formal sector jobs and turned to informal sector work to avoid unemployment [34]. By 2012, the number of rural migrant workers had reached a staggering 163 million [35]. In China, institutional factors, such as the household registration system, employment structures, and property arrangements, have heavily influenced the country’s dual labor market. Reforms in the household registration system and residence permits have aimed to grant rural migrant workers equal citizenship rights in urban labor markets. However, while there has been progress in equality of identity, it does not always translate into equal rights for these individuals [36][37]. There are two primary reasons why individuals opt for flexible employment in China: survival by avoiding unemployment or pursuing personal development freely. Therefore, it can be observed that engaging in flexible employment is based on voluntary choices [38][39]. Flexible employment exists not only within the informal sector but also within the formal sector in China. The country has a diverse range of informal workers with high-level skills and significant high human capital, from street vendors to self-employed individuals and from dispatched workers to freelancers such as lawyers and writers [40].
Although there is a considerable income gap between formal and flexible employment in China on average, scholars have different views on the breakdown of the income differences between them. Some argue that individual characteristics primarily contribute to this income disparity [41][42], while others believe that labor market segmentation plays a dominant role [43]. Several studies have explored the heterogeneity of flexible employment in China [26][34][44]. The prevailing perspective suggests that the entire informal sector constitutes a low-end and secondary labor market, which is distinct from the formal sector, where flexible workers are often characterized as possessing low-level skills and low human capital [45][46][47]. As more individuals choose flexible employment, its importance has gained recognition from the Chinese government. Limited formal job opportunities and stringent regulations have led formal workers to experience notably lower income levels than before. Consequently, many seeking higher incomes have shifted to flexible employment at the lower levels. This trend might expand and help ease unemployment pressures. Government-backed initiatives have notably enhanced China’s environment for flexible workers, ensuring a more orderly and quality-focused development in employment [48]. During China’s economic transformation and structural adjustments, informal sectors have shown rapid growth. Both macro statistical data and micro household data consistently highlight one thing: flexible employment serves as an effective solution to address current and future unemployment challenges in China [14][34][49][50].

3. Factors Affecting the Income of Flexible Workers

In 1974, the American economist, Jacob Mincer, conducted research on the impact of work experience and education on the human capital input in labor market returns. He identified laborers’ accumulation of human capital as a crucial factor influencing income while disregarding the differences and separately analyzing years of work experience and education [51]. A study examining the yield of work experience among different income groups of flexible workers revealed that the lowest 10% income group had a return 0.93% lower compared to that of the highest 10% income group, suggesting that this phenomenon is particularly unfavorable for young individuals who just entered the labor market [52]. Furthermore, it was observed that there is a continuous positive correlation between work experience and income, but the return rate of marginal work experience decreases year by year [53]. Some scholars have also discovered that their research results in flexible employment are different from the general law of the Mincer equation; the inverted U-shaped curve of experience and income exists only for flexible workers. However, in formal sectors, work experience and income monotonously increase in a linear relationship [41]. Additionally, certain scholars argue that schools can be considered specialized enterprises; thus, traditional studies fail to clearly define the influence of education on income. Work experiences during schooling should also be regarded as part of students’ overall professional development since previous studies underestimate their impact on earnings [54]. Moreover, internal heterogeneity exists among migrant workers, whereby the household registration type and educational background affect their return rate on work experiences [55]. Workers with higher levels of education and skills possess a greater amount of human capital. An investigation into the association between workers’ education and entrepreneurship in both the United States and European countries has revealed a strong positive correlation between educational attainment and the choice of self-employment with flexible work arrangements [56]. The educational investment yield of formal workers engaged in stable work is higher than that of those engaged in unstable, flexible work [57]. The scarcity of human capital resulting from educational deficiencies directly impacts the bargaining power and competitiveness of participants in the labor market, thereby constraining the mobility of low-level skilled workers, forcing them to choose these lower-tier flexible job opportunities [37].
In addition to work experience and education, personal characteristics are often introduced as control variables in the employment selection model of workers. Gender, age, marriage, household registration type, etc., all of these variables have received significant attention in the existing literature. Gender is considered a core factor in studying human capital’s impact on income, and scholars have extensively researched income inequality resulting from gender discrimination [58][59][60]. Many females in flexible work face disadvantages due to physical attributes and lower education levels, leading to lower incomes. Technological advancements have polarized job demands, favoring high and low-skilled positions, reducing opportunities for general skilled workers. This has pushed many medium or low-skilled women into lower-level flexible work [61]. The growth rate of the female labor force engaged in flexible employment has surpassed that of men. The allocation of domestic responsibilities within households requires women to dedicate more time to family care, and flexible employment offers them the opportunity for adaptable working hours and schedules [62]. From an individual perspective, women’s responsibilities in family care and reproductive duties have impacted their competitiveness in the labor market, leading to a reduction in their overall human capital. From a societal standpoint, gender disparities in career opportunities and income gaps persist within the labor market [59]. The rapid growth of flexible employment also signifies a decline in men’s status within the traditional labor market while women are progressively gaining ground and increasing their presence [63]. High-income groups have less gender discrimination and smaller income gaps than middle- and low-income groups. Women experience a significantly higher return on education across all income categories compared to men, attributed to changes in skill demand from technological advancements. This indicates that education can partially mitigate income inequality stemming from gender discrimination [52][64]. Notably, gender discrimination is more prevalent in China’s state-owned sector compared to that in the non-state-owned sectors [65].
Age is linked to individual risk preferences and the accumulation of material and social capital, influencing workers’ choices regarding flexible employment. Studies show a notable nonlinear effect of age on workers’ employment decisions. There is an inverted U-shaped relationship between self-employment/flexible employment and age, typically peaking around 45 years old. Beyond this point, the likelihood of migrant workers choosing self-employment gradually decreases in China [66]. German microdata analysis also revealed a comparable inverted U-shaped relationship between the likelihood of self-employment/flexible employment and age. Scholars identified this pattern, suggesting the inflection point might occur between 40 and 50 years old [56]. Studies on flexible work arrangements and health outcomes present a distinct focus compared to those examining health risks in traditional formal employment systems. Instead of centering on safety measures, employment pressure, and instability affecting health, these studies concentrate on the relationship between flexible work arrangements and health outcomes themselves [67][68]. Many flexible workers share similar characteristics with the unemployed group, such as possessing low-level production skills, earning a low income, and belonging to demographic groups including females, migrants, or minorities. All of these factors contribute significantly to the health issues among flexible workers. Additionally, the health of workers can be equally negatively impacted by various forms of flexible employment, just as it can be in traditional forms of employment [69].
In terms of marriage, married male workers exhibit a higher probability of opting for self-employed flexible employment. Self-employed flexible workers demonstrate enhanced risk resistance capabilities and the ability to employ their spouses, thereby optimizing their familial division of labor and maximizing their income [70]. Married medical professionals choose to engage in flexible employment within hospitals, hoping to strike a balance between family responsibilities and work commitments, which enables them to spend more quality time with their children [71]. A married couple with one partner engaged in flexible employment can optimize the division of family labor and the fulfillment of child support obligations [72]. Family background plays a crucial role in shaping individuals’ social and material capital, impacting their employment choices. The financial situation and informal human capital within families notably influence workers’ decisions to opt for flexible employment. Parents’ business experience and financial support offer crucial backing—financially, emotionally, and through empirical knowledge—for individuals engaging in flexible self-employment [73][74]. The size of the family reflects the poverty risk faced by a household, which subsequently impacts individual workers’ employment choices. It has been observed that larger family sizes are associated with increased poverty risks due to greater caregiving responsibilities for children and elderly members, consequently leading to a higher likelihood of choosing self-employed flexible employment [75].
In terms of working hours, the flexibility of working hours is considered to have a positive impact on the choice of flexible employment [76][77][78]; it is also believed that flexible employment does not reduce the working hours but rather extends the working hours of flexible workers [79][80]. Working hours vary significantly among urban and rural workers, different industries, and employment positions, as self-employed workers have the shortest working hours, domestic workers have longer working hours, and employers have the longest working hours [81]. Social insurance is also an important indicator influencing the choice of flexible employment. The related policies and regulations of social insurance for flexible workers are consistently addressed by the relevant departments in many countries [18][82]. Most flexible workers have been excluded from social security coverage for a long time, and low income, as well as weak insurance participation ability, are the common characteristics of China’s flexible employment [83][84][85]. Consequently, social security benefits, including unemployment insurance, health insurance, and pension schemes, have emerged as pivotal incentives for individuals to embrace flexible employment [86][87].
In comparative terms, the floating population exhibits a higher inclination towards opting for flexible employment. When studying the entrepreneurial choices of the floating population, it was observed that compared to interprovincial mobility, floating workers in provinces and cities had a higher likelihood of opting for flexible employment. The extent of workers’ mobility is negatively correlated with the preference for self-employment but positively correlated with formal employment [88]. From a regional perspective, variables, such as socio-demographic characteristics, socio-cultural background, infrastructure development, economic structure, and local labor policies, are all important factors influencing workers’ choices regarding flexible employment [89][90]. China’s economic development and institutional changes are closely linked to regional characteristics. Regional disparities exist not only in terms of material resources, human resource endowment, and socio-economic development levels but also due to varying institutional factors, such as local interest protection and employment discrimination policies, and this leads to the creation of segmented labor markets across regions [91][92]. The type of property ownership and occupation, as well as the urban–rural conditions, have a significant impact on income among individuals engaged in flexible work [93]. Empirical microdata from Russia demonstrate that, while flexible employment can effectively increase income among low-income groups, it fails to reduce the poverty incidence rates [94].

This entry is adapted from the peer-reviewed paper 10.3390/su152316422

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