China's real unemployment rate is much higher than the official rate and, when correctly measured, is much closer to that in other nations at similar levels of development, according to Long Run Trends in Unemployment and Labor Force Participation in China (NBER Working Paper No. 21460). The study estimates that the actual unemployment rate in 2002-09 averaged nearly 11 percent, while the official rate averaged less than half that. Moreover, despite some reports to the contrary, by 2009 China's labor market had still not recovered from huge layoffs that occurred during the later 1990s and early 2000s as the nation transitioned from a government-controlled economy to one in which private enterprise and market forces were more at play.
"The official unemployment rate series for China is implausible and is an outlier in the distribution of unemployment rates across countries ranked by their stage of development," write researchers Shuaizhang Feng, Yingyao Hu, and Robert Moffitt. "We find that, by approximately 2002, the unemployment in China was actually higher than that of high income countries, exactly the opposite of what is implied by the official series."
The official unemployment rate in China, which is based on registered unemployment figures, has long been viewed with suspicion. Various private studies have tried to come up with better estimates. This paper uses for the first time a nationally representative sample of registered urban residents–the "hukou" population–based on urban household survey data, supplemented with weights derived from the decennial census. The study derives a much different picture of how Chinese unemployment has evolved since the mid-1990s.