Gan Li: Educational dividend can alleviate the loss of demographic dividend, and should narrow the difference of educational investment

 Gan Li: Educational dividend can alleviate the loss of demographic dividend, and should narrow the difference of educational investment

Author: Gan Li, Ouyang, Junqin Fang (China family finance research and Research Center, Southwest University of Finance and Economics)

1u3001 The labor cost competitive advantage of labor intensive industries in China has declined

For a long time, China has been implementing the strategy of cost leading competition, mainly relying on the advantage of low labor cost and giving up environmental responsibility to participate in the competition of international products and services with low scientific and technological content. In recent years, multiple factors have pushed up the labor cost of Chinas labor-intensive industries. First of all, Chinas working age population has decreased. Chinas total labor age population and its proportion in the total population are declining (see Figure 1). Coupled with the reproduction characteristics of low birth rate, low mortality rate and low natural growth rate, the sufficient labor supply is not sustainable.

Figure 1 number and proportion of working age population (unit: 10000 people)

Source: National Bureau of statistics

Secondly, the surplus rural labor force has been transferred to the city. Chinas rural labor transfer is coming to an end. Although the total number of migrant workers concentrated in labor-intensive industries continues to increase, the growth rate drops significantly. According to the National Bureau of Statistics migrant workers monitoring survey report, in 2018, the total number of migrant workers in China was 288 million, but the growth rate dropped from 5.4% in 2010 to 0.6%. Among them, 135 million migrant workers entered the city, a decrease of 2.04 million or 1.5% compared with 2017.

Figure 2 number and growth rate of migrant workers

Data source: migrant workers Monitoring Report

The decrease of working age population and the decrease of rural surplus labor force will lead to the relative shortage of labor supply and promote the rise of wage level. Figure 3 shows the average wage level (nominal wage and real wage) and the wage growth rate (nominal and actual) of Chinas manufacturing industry since 1978. It can be seen that since the reform and opening up, the wage level of Chinas manufacturing industry has increased significantly.

Figure 3 average wage level and growth rate of manufacturing industry

Source: National Bureau of statistics

At present, with the aggravation of the aging population and the increasing downward pressure on the economy, the sustainability of the demographic dividend has aroused widespread controversy. However, demographic dividend is essentially a labor cost advantage and a comparative advantage between wage level and labor productivity gap. In the past, in labor-intensive industries, the difference between slower wage growth and faster labor productivity growth brought about competitive advantages of low labor costs. Figure 4 shows Chinas real wage and labor productivity index, which is expressed in real GDP per capita of employees. As can be seen from the figure, before 1997, the wage level of Chinas manufacturing industry grew slowly, with an average annual increase of about 5% and an average annual growth of labor productivity of about 3% in the same period. Since 1997, the wage level of manufacturing industry has been increasing rapidly. The average annual growth rate of real wage is as high as 10%, while the labor productivity is only 3%. The growth rate of wage level exceeds the growth rate of labor productivity, which indicates that the relative advantage of labor cost in traditional manufacturing industry is gradually weakening.

Figure 4 Chinas real wage index and labor productivity index (based on 1999)

Source: National Bureau of statistics

Chinas labor cost advantage in the traditional manufacturing and service fields is gradually losing, while the labor cost in Vietnam, Philippines, India and other international markets is lower and more capital to implement the cost leading strategy. We compare the relative labor costs, i.e. remuneration / productivity, in China, Vietnam, the Philippines, India and Indonesia (see Table 1). Among them, labor remuneration is measured by per capita nominal monthly wage (converted into RMB), and labor productivity is measured by per capita GDP of employees (purchasing power parity method, unchanged in 2011 US dollars). As can be seen from table 1, the relative labor cost of China is higher than that of Vietnam and other countries. With the increase of the relative cost of labor force, Chinas economic growth source relying on the full supply of labor force in the past will turn to rely on the improvement of total factor productivity. The main way is to speed up technological progress and independent innovation ability, and promote the optimization and upgrading of industrial structure, which requires high-quality labor force as the basis.

Table 1 Comparison of relative labor costs in different countries

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Source: International Statistical Yearbook

2u3001 The improvement of young peoples education level weakens the negative impact of the reduction of working age population on the economy

The improvement of the education level of the labor force population can promote the economic growth. The education level of population not only determines the countrys technological innovation ability, but also affects the speed of technology catching up and technology diffusion. The increase of education level of labor force can promote the improvement of total factor productivity. At the same time, the improvement of education level is also the main source of labor productivity. Higher level of education means that workers have stronger ability to learn and adapt.

Figure 5 labor productivity of manufacturing industry and proportion of employees with senior high school or above

Source: input output table and Labor Statistics Yearbook

Since the reform and opening up, Chinas education level has been greatly improved, compulsory education has been popularized, and vocational education and higher education have developed rapidly. According to the data of China family finance survey and Research Center (Figure 6), Chinas education level has been steadily improved. The proportion of 16-64 year-old working age population with high school education or above has increased from 37.8% in 2013 to 44.5% in 2019. Among them, the proportion of young people aged 16-34 also increased from 56.0% in 2013 to 64.8%. The continuous improvement of young peoples education level provides high-quality labor reserve for Chinas high-tech industry, which is the basis of Chinas sustained economic growth.

Figure 6 proportion of senior high school and above

3u3001 New competitive advantages appear in new manufacturing industry and high-end service industry

As China has become the second largest economy in the world, its competitors have expanded from developing countries to developed countries, competing with the developing countries in the low-end products and services market, and with advanced developed economies in the fields of products and services with complex technologies. In the competition between the low-end products and service markets and the emerging developing countries, China has no comparative advantage in labor cost. However, in the new manufacturing industry and high-end service industry with high technology content and high added value, we mainly compete with developed countries, and the comparative advantage between wage level and labor productivity gap is still obvious. In 2018, the average annual wage of employees in Enterprises above Designated Size in China was 68400 yuan, including 96700 yuan for professional and technical personnel. Even the average wage of professional and technical personnel was less than 30% of that in the United States.

Although Chinas science and technology level is still lagging behind the developed countries, it has become one of the worlds leading countries in more and more fields, bringing new competitive advantages to China. At the same time, the leaping and explosive development of Chinas higher education has trained a large number of high-quality workers with innovative ability, which will greatly promote the labor productivity. According to the data, the proportion of young people aged 25-34 with higher education degree has increased from 17.9% in 2010 to 36.5% in 2019. It makes it possible for China to cross over developed economies, develop new technologies, innovate new products, and lead the adjustment of global industrial structure.

4u3001 Deepening education and improving labor productivity have great potential

The education level of working age population in China has been improving, but there is still a big gap compared with developed countries. In terms of the average number of years of education for the population aged 15-64, it will be 9.7 in China in 2019, while it is generally 10-12 years in developed countries in the world. In terms of the proportion of young people aged 25-34 with higher education (see Figure 7), in 2019, the proportion in China was 36.5%, while that in South Korea was 69.6%, that in Japan was 61.8%, and that in the United States was 49.4%. This shows that there is still a huge room for improvement in the education level of Chinas population.

Figure 725-34 proportion of secondary and tertiary education in the population

In addition, there are great differences in the level of education development between regions and between urban and rural areas. According to the data of Chinas household finance survey, 41.6% of young people aged 25-34 in the eastern region of China have higher education qualifications in 2019, 36.7% in the central region and 32.2% in the western region. From the perspective of urban and rural areas, in 2017, 78.3% of the population aged 18 in urban areas had ordinary high school education (excluding vocational high school), while that in rural areas was 54.2%. In the short term, these differences are the constraints to the improvement of labor productivity in China, and also contain the great potential of deepening education to improve labor productivity.

5u3001 Create an environment conducive to the accumulation of human capital to consolidate and improve the new demographic dividend

First of all, increase the expenditure on education in rural areas. From the above analysis, it can be seen that narrowing the educational gap between regions and urban and rural areas is the key to improve Chinas human capital as a whole, while the uneven investment of education funds between urban and rural areas restricts the balanced development of education in China. Statistics Bureau data show that the average public expenditure of rural primary school students in 2018 is 2545.5 yuan, lower than the national level of 2794.6 yuan. The average rural junior high school is 3460.8 yuan, which is also lower than the national level of 3907.8 yuan. The absolute level of rural education investment is not only low, but also the growth rate is lower than the national level. In 2018, the average growth rate of public expenditure of rural primary school students is 1.99%, which is 2.29% in China. 59% in rural areas and 3. 04% in China. This requires the government to continue to increase investment in education, at the same time, increase the education expenditure in rural areas, especially in backward areas.

Secondly, we should promote the implementation of youth education promotion plan in poor areas. The aim of the program is to improve the academic performance of students in poor areas and attach importance to education. The basic idea is to provide rewards to students or teachers who have achieved a certain learning goal, and guide parents, students and teachers to increase their investment in education. By increasing investment in education and using limited funds to improve the education level of teenagers, it can not only increase the accumulation of social human capital, promote technological progress, but also fundamentally help low-income families to get rid of the vicious circle of poverty handed down from generation to generation. In July 2015, China family finance investigation and research center carried out the first round of youth education promotion plan project in Mabian Yi Autonomous County. After the implementation of the project, parents concern for students learning has been effectively improved, students and parents investment in learning has increased, and students academic performance has made great progress.

Finally, it provides the guarantee and way to promote lifelong learning for all. On the whole, the education level of working age population in China still lags behind that of developed countries. It is particularly important to strengthen the re education of the employed population. The core is to increase the availability and accessibility of re education resources. Considering the popularity of smart phones, the provision of re education resources can be pushed through apps such as learning power and Zhihu. For those who need professional knowledge, online education resources can also be obtained through payment.

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