To prevent cyclical factors from becoming structural ones, the government must break the demand-side constraints

China's urban surveyed unemployment rate stood at 5.9 percent in May, a figure close to the highest level of 6.2 percent registered in February 2020 when the COVID-19 pandemic broke out in the country, leading to the lockdown of Wuhan, which first reported the outbreak of the epidemic, and other large cities.

The unemployment rate of people between 16 and 24 years old reached a record high of 18.4 percent in May. The youth unemployment usually peaks during the graduation season from July to September. The current high jobless rate has far exceeded the peak levels witnessed in previous graduation seasons.

But that figure alone is not sufficient to reflect the sharp contraction in the job market of migrant workers since many of them have not returned to the cities where they worked due to travel restrictions imposed to contain the novel coronavirus.

After overcoming the shock of the pandemic in 2020, China's economy bounced back gradually and saw a compensatory growth rate of 8.1 percent in 2021. But the spread of the highly transmissible Omicron strain of the novel coronavirus held back the economic growth in early 2022. With a number of cities rolling out stringent containment measures, the country's economy has experienced a downturn since March, with production and consumption severely dampened.

The changes of other economic indicators are in line with the unemployment rate, indicating a period of cyclical unemployment. From March to May, the purchasing managers index for both manufacturing and non-manufacturing sectors were below the reading of 50, which indicates contraction.

In addition, the retail sales of consumer goods decreased by 6.7 percent, and the revenue of the catering sector contracted by 21.1 percent year-on-year in May. The total value of imports and exports increased 2.1 percent year-on-year in April, compared with a growth of 37 percent in the same period last year.

But due to sluggish consumption, the high producer price index did not lead to a rise in the consumer price index, and the country is experiencing high unemployment and low inflation at the same time. Thus, the GDP growth in the second quarter of 2022 is projected to fall short of expectations.

While appropriate policy tools should be used to tackle the cyclical unemployment, the government should also defuse risks and prevent cyclical factors from turning into structural ones, thus ensuring the stability of the labor market in the long run.

Take the number of new entrants to the labor market for example. Of all graduates in 2020, 15.4 million were junior high school graduates, 12.8 million graduated from senior high school and 8.7 million from universities. Because the enrollment rates of both junior and senior high schools are high, the pressure for university and college graduates to find jobs is huge.

A large proportion of young Chinese workers, no matter what diploma they hold, are flexibly employed in the service sector, and they take the brunt of structural and frictional unemployment.

If the economy does not timely recover, the cyclical employment and temporary shock to the job market may turn into structural and long-term employment difficulties. Statistically speaking, the natural unemployment caused by structural and frictional factors may climb to a new high.

The fundamentals and resilience of the Chinese economy have not been undermined by the temporary disruption caused by the pandemic. With the spread of the novel coronavirus put under effective control, production and consumption will recover, economic growth will return to its potential rate, and cyclical unemployment will fade away. In fact, some economic indicators have already picked up since May.

It is worth noting that unemployment is not a dependent variable solely determined by cyclical factors. There is ample policy room for the government to prevent the shock to the labor market from persisting too long, and prevent cyclical and transitory factors from morphing into secular, structural trends. The youth have the strongest willingness to spend compared to other age groups. If they suffer lasting employment difficulties, the demand-side driver of China's growth in the long run may weaken.

That requires employing macroeconomic policy tools in the short run and creating more high-quality jobs through economic growth in the long run. The Chinese government has deployed various macroeconomic tools, such as subsidizing enterprises to retain employees, to help young people seek jobs.

More proactive employment policies aim to tackle both long- and short-term challenges. With the Chinese population expected to peak and rapidly gray, the supply-side potential of the economy will face greater challenges and demand-side factors will become secular and normal constraints on growth. To return growth to its potential rate and unlock the potential of the economy, both producers and consumers urgently need policy support.

The Chinese government has rolled out measures to cut taxes and fees, and improve the climate of doing business for market entities in response to supply-side shocks. Small, medium-sized and large enterprises, as well as individually-owned businesses have a better chance of surviving or resuming operations, which means that employment can be stabilized and new jobs can be created.

As the principal challenges facing the economy shift to the demand side, the government will need to provide more reliable social security to protect households' incomes and consumption. This will break the demand-side constraints on the economy's short-term recovery and long-term growth.

The author is chief researcher of the National High-end Think Tank at the Chinese Academy of Social Sciences. The author contributed this article to China Watch, a think tank powered by China Daily.

The views do not necessarily reflect those of China Daily.

Contact the editor at editor@chinawatch.cn