Job creation increases with productivity growth, because firms create more jobs when there is larger profit, and higher productivity leads to larger profits. As a developing country, China’s technological catch-up leads to rapidly growing productivity, which contributes significantly to job creation. Besides, productivity growth in China also benefits from management improvements in enterprises, such as the reforms of state-owned enterprises and the development of private enterprises.
A decline in job-worker matching efficiency has a negative effect on job creation. The reason is that the possibility of a vacant job not being matched to a worker will increase when matching efficiency decreases, and this will discourage firms from job creation. Furthermore, increased job destruction in the 1990s restrained job creation in China, because firms will create fewer jobs if there is a higher possibility of jobs being destroyed. Job creation dropped greatly in the late 1990s when job destruction reached its peak, both in state-owned and private enterprises.
It is important that job creation reacts effectively to changes in job seekers. The theoretical job creation condition indicates that under profit maximization, the ratio of vacant jobs to job seekers is independent of changes in job seekers, which is the reality in China. This finding is especially important for the issue of the effect of migrants on urban China’s labor market. It is shown that although there was an increasing number of rural migrant job seekers in urban China, this did not change China’s market tightness, because firms opened up more vacancies as job seekers increased.