Labour-Use Efficiency in China: A Stochastic Frontier Analysis

Abstract

Using panel data and applying the stochastic frontier analysis, this paper investigates the labor-use efficiency of 24 provinces/administrative regions of China between 2011 and 2019. The average labor efficiency relative to the most efficient province was 86.1 per cent, whereas Tianjin, followed by Shanghai, was the most efficient province (100 per cent and 95.2 per cent, respectively). We find a potential for reducing labor demand by up to 13.9 per cent across all provinces. At the same time, Guangdong is the least efficient province and could improve its labor efficiency by about 19.5 per cent. In addition, the paper studies labor elasticity and marginal risk with respect to output, capital, wage, and time.