Caixin
Mar 24, 2021 07:44 PM
OPINION

Opinion: How China Can Make Its Shrinking Workforce More Educated

Graduates apply for jobs at a campus job fair in Huainan, East China's Anhui province, on Nov. 21, 2020. Photo: IC Photo
Graduates apply for jobs at a campus job fair in Huainan, East China's Anhui province, on Nov. 21, 2020. Photo: IC Photo

Tianlei Huang is research fellow at the Peterson Institute for International Economics. Nicholas Lardy is the Anthony M. Solomon Senior Fellow at the Peterson Institute for International Economics.

The shrinking of China’s working-age population is becoming an increasing drag on economic growth. The government’s strategy is to raise the educational attainment of its diminishing labor force, while gradually raising retirement ages. The recently unveiled 14th Five-Year Plan (2021-25) calls for increasing the average years of education of China’s working age population from 10.8 years in 2020 to 11.3 years in 2025. While it seems an ambitious goal at first glance, China is on track to realize it.

Shrinking and undereducated

China’s working-age population reached its peak of more than 1.004 billion in 2013 and began to shrink since then (see figure 1). The working-age population is defined as those aged between 15 and 64 years old. It is a broader concept than the workforce, which refers to the number of working-age people employed plus those unemployed but looking for jobs.

The working-age share of the entire population started to decline since 2010. Given that China has one of the highest labor force participation rates in the world, the room to offset this demographic drag by further raising the labor force participation is limited. That said, given that the female labor force participation rate is on the decline, removing the many gender-based discriminatory practices in the workforce and encouraging greater female labor force participation can potentially help counter this drag at least partially.

What makes the shrinkage of working-age population even more worrying is the fact that China’s labor force is inadequately educated. In the first two decades of economic reform (1980-2000), China underinvested in human capital. As a result, by 2015 only 30% of China’s work force had a high school or better education. This is well below initial levels of human capital of other successful modernizers in East Asia. For example, when South Korea and Taiwan were beginning to transition away from a reliance on unskilled manufacturing in the early 1980s (a point China entered about 2015), nearly three-quarters of their work forces had graduated from high school.

OP-POPULATION charts-1

Attainable goal

Aside from rolling out a plan to raise the retirement age step by step, the 14th Five-Year Plan also calls for increasing the average years of education of China’s working age population from 10.8 years in 2020 to 11.3 years in 2025, or 0.1 year of education per year.

This seems an ambitious goal at first glance. Given China has a working-age population of 989 million as of 2019, raising the average years of education by half a year in five years means that the working-age population will need to accumulate 495 million more years of education in total in the next five years. That is equivalent to ask 165 million Chinese people to start and finish a 3-year high school education.

Nevertheless, this is not a stretch and China is on track to realize it. Figure 2 shows that the average years of education of China’s working age population grew by about 0.1 year of education per year during the 12th and 13th five-year plans spanning 2010 through 2020. A simple model we developed shows that the incoming cohorts of the working-age population during 2020 through 2025 need to have average years of education between 12.6 and 14.7 years in order for China to realize the goal.

The model assumes that the outgoing cohorts of the working-age population are less educated than the younger generations and their average years of education are between 7 and 9 years. It also assumes that there is no additional schooling of the cohorts staying in the working-age population throughout the five-year period.

But if additional schooling is taken into account, the average years of education the incoming cohorts need to have would be even lower. This seems to be within reach for China. According to the Ministry of Education, the average years of education of the incoming labor force in 2019 has already risen to 13.7 years and more than half of them have received a higher education.

How do China’s aspirations compare internationally? The 2025 average of 24 advanced economies projected in the Barro-Lee Educational Attainment Dataset is 12 years, more than 0.7 year higher than China’s goal of 11.3 years in 2025.

OP-POPULATION charts-2

But Cui Jifang (2019) shows that as the younger generations in China are substantially more educated than the older generations, China will likely accumulate human capital much faster than many advanced economies where educational attainment across generations varies little. Cui estimates that the average years of education that China’s working-age population will reach between 12.6 and 12.8 years in 2035, the year China aims at becoming a “moderately developed country.” This is higher than the 2035 advanced economy average of 12.3 years projected in the Barro-Lee dataset, even surpassing the levels of most European countries including Austria, Belgium, Denmark, Finland and France.

Now the question is what China needs to do to make this truly materialize. One area of critical importance is rural education, given that the high school attainment rate of working-age rural residents is only one-fourth that of urban residents. Since more than 70% of China’s future labor force aged below 20 now are living in rural areas and small towns, China can no longer afford to leave another generation of young people in rural areas undereducated. The 14th Five-Year Plan calls for expanding capacity of urban schools to enroll more children of migrant workers while improving rural education. Hopefully, that will bring some meaningful changes.

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