Everybody knows China’s been able to become the workshop of the world because it’s harvested a massive ‘Demographic Dividend’. Right?
Xin Meng, from the Australian National University writing in a Discussion Paper for the IZA Institute of Labor Economics, after taking a closer look at the data, begs to differ.
As the work shows, an increase in the Working Age Population Share (WAPS) over the period was almost completely offset by a decline in the labor participation rate. The so-called ‘Demographic Dividend’, on closer inspection, appears to be more mythical-beast than killer-app.
So what’s going on? Three groups account for most of the fall in labor force participation over the period:
- Urban females. Female work force participation in the Mao-era was exceptionally high so some mean reversion has occurred. The cost of child care (*see the chart at the very end), which skyrocketed over the period was almost certainly another significant contributory factor.
- Urban oldies. Urban hukou (residency entitlement) holders were able to retire over the period in far bigger numbers than country cousins. Pensions for urbanites are guaranteed but not for farmers and even long suffering migrant workers find it hard to qualify.
- Educated Youth. Over the period not only was the period of primary education raised (to a 9-year minimum) but also tertiary education was significantly enlarged and encouraged. [This last effect is surely a one-off and may help explain today’s youth unemployment problems?]
The big conclusion is obvious. All talk about China’s economy running into trouble in the future due to an absence of workers is missing the point. As the paper concludes “..how to prepare the workforce to meet the future quality requirement should be the priority rather than an excessive focus on the working age population alone.”
My two-pennyworth would be to further add that China’s problem in future, as it progresses a higher value-added economy, may not be a shortage of labor, but a problematic surplus.
You can access the work in full via this link The Labor Supply Quantity Myth.
Happy Sunday.
*As an aside this chart from the paper took my breath away. I’ll bet it’s not just a China phenomena and may help explain certain trends in other parts of the world too.
