Human Capital and China’s Future Growth

Abstract

In this paper, we consider the sources and prospects for economic growth in China with a focus on human capital. First, we provide an overview of the role that labor has played in China's economic success. We then describe China's hukou policy, which divides China's labor force into two distinct segments, one composed of rural workers and the other of urban workers. For the rural labor force, we focus on the challenges of raising human capital by both increasing basic educational attainment rates as well as the quality of education. For the urban labor force, we focus on the issues of further expanding enrollment in college education as well as improving the quality of college education. We use a regression model to show the typical relationship between human capital and output in economies around the world and demonstrate how that relationship has evolved since 1980. We show that China has made substantial strides both in the education level of its population and in the way that education is being rewarded in its labor markets. However, as we look ahead, our results imply that China may find it impossible to maintain what appears to be its desired growth rate of 7 percent in the next 20 years; a growth rate of 3 percent over the next two decades seems more plausible. Finally, we present policy recommendations, which are rooted in the belief that China continues to have substantial room to improve the human capital of its labor force.

The Chinese labor market, 2000–2016

“…As such, labor unions were unnecessary at that time. By 2014, the situation had changed dramatically, with approximately 83% of workers employed in the private sector (Li et al, 2017). However, many workers were not treated well by private firms, which led to frequent strikes and terminations.…”

“…In comparison, urban workers had an average of 12 completed school years, the equivalent of high school. The large gap in education between rural and urban workers suggests lagging human capital development for rural workers [8].…”

Educating the children of migrants in China and the United States: a common challenge?

“…Districts within the municipality can add further requirements. For example, Chaoyang and Tongzhou districts of Beijing require that both parents work formally in that district and pay social insurance there for more than 1 year, that they have property ownership certificates or formal apartment leases in the district, and that the certificate of no guardianship in the sending place be signed by the local Public Security Bureau (Li et al 2017). It is hard for many migrants to obtain these documents, as they often work in the informal economy with no labor contract and rent rooms without a formal lease.…”

“…However, there is a clear and descending hierarchy in terms of the quality of education in different schools in terms of funding, facilities and teaching quality, from elite public schools, through ordinary public schools, to semi-public schools and finally private migrant schools that are completely outside the public system. Within both the public and private systems, migrants are concentrated in less well-resourced schools (Han et al 2017;Lu and Chu 2017;Li et al 2017;Zhou and Wang 2016). For example, in 2008 Shanghai merged 35 migrant schools in District Five into 13 semi-public institutions (minban xuexiao) with funding from district resources and using the local curriculum.…”

“…Of course, the right to access higher education is not the only issue. For poor rural and migrant families, the costs of high school and university are exorbitantly high and the opportunity costs of lost wages must also be considered (Li et al 2017).…”