Impact of economic policy uncertainty on non-farm employment: evidence from China

Abstract

Purpose This paper examines the impact of economic policy uncertainty (EPU) on rural workers’ participation in non-farm employment (NFE) in China, and analyzes the social implications of policy instability for livelihood security and labor market integration among vulnerable groups. Design/methodology/approach This study utilizes microdata from the China Family Panel Studies covering 2010–2016, matched with a provincial economic policy uncertainty index. To address potential endogeneity, an instrumental variables strategy is employed to identify the causal effect of policy uncertainty on rural employment outcomes. Findings The results show that higher EPU significantly reduces the likelihood of rural workers participating in NFE, a finding robust across alternative specifications. Mechanism analyses reveal that EPU inhibits NFE primarily by suppressing labor demand in non-agricultural sectors. Specifically, it contracts employment in the construction and tertiary industries and curbs the labor absorption capacity of private enterprises. Heterogeneity analyses further highlight distributional implications: the adverse effects are more pronounced for rural workers with lower human capital, lower household income, and greater geographic remoteness from urban centers, with remoteness emerging as a critical amplification channel of vulnerability. Originality/value This study provides new micro-level evidence on how EPU shapes labor market inclusiveness and social stratification in developing countries. By emphasizing the disproportionate impacts on marginalized groups, it offers empirical insights for designing employment-stabilization and social policies targeting vulnerable populations.