Industry specialization, diversification, churning, and unemployment in Chinese cities

This paper studies how industry specialization, diversification, and churning affect unemployment rates in Chinese cities. Using a city level panel data set from 1997 to 2006, we find that in contrast to the evidence from developed countries, industry diversity is positively and significantly associated with unemployment rates, possibly due to the high degree of industry churning during the sample period. We also find that the specialization of construction industry and wholesale and retail trade industry can significantly decrease unemployment rate, but specializing in finance industry increases unemployment rate. Urban growth, market maturity measured by the proportion of private sector employment, and human capital can decrease unemployment rate. The effect of industry structure on unemployment instability is also discussed.