STRUCTURAL TRANSFORMATION,LABOR MARKET DISTORTIONS,AND CHINA'S PRODUCTIVITY GROWTH SLOWDOWN

After a long period of rapid economic growth,the growth rate of labor productivity began to decline in China since 2007.In this paper,we develop a three-sector neoclassical model of structural transformation and use the model to assess the driving forces of China's productivity growth slowdown.We find that the low productivity growth rate in services is the most important force driving the Chinese productivity growth slowdown.In contrast,the productivity growth in agriculture and the weakening labor market distortions are conductive to China's aggregate productivity growth.To the extent that the service sector constitutes a large and increasing share of the economy,a slowdown in aggregate productivity growth would be inevitable.