Yaohui’s story
• Rapidly ageing
• Institutions that promote (extremely) early
retirement
• Poor pensions (underfunded)
• Very rural society / still low income (China
is 80th per capita GDP in the world)
Question
• Who is going to support these elderly?
• Can China change retirement age?
– Lots of push back
– Inevitable
– But, this only affects small part of population
(formal urban sector)
In my comments
I want to show why the answer to:
Who will support China’s future elderly?
is a difficult question to answer.
Mainly because extrapolating out most of
the trends … for income … for wealth … for
fiscal capacity (to finance social security,
pensions, health insurance etc.) depends on
continuing productivity gain of China’s
economy … and this may be difficult to do
So what motivates these questions?
3. EXPLAINING THE RURAL
TREND
There are important and interesting trends in rural employment.
Employment rose in the 1990s and declined quite sharply in the 2000s.
No one retired in the past
“working until dropping”
Common in poor rural economies …
Young men led the growth of off-farm employment, followed by older men, young
women, and eventually older women.
Hd. Mechanization of Agriculture
With accelerated mechanization of agriculture since 2000, demand for farm
labor declines. This may be responsible for the decline in employment of older
The change in labor force participation of older rural people correspond very
well with the change in agricultural employment. In other words, older and
female workers increase their labor force participation as younger and male
Young men led the growth of off-farm employment (especially employment in lowwage, unskilled manufacturing), followed by older men, young women, and
eventually older women.
Migration is an important part of the off-farm employment. Migration has been
shown to be more concentrated among younger and male workers.
CHARLS life history probably underestimates out-migration because we have a
six-month rule in the definition. Nevertheless, the rising trend is clear.
Summary
• So you have an ageing society … mostly
rural …
• Everyone is moving out of agriculture
• But, no one is being integrated into the city
**************
• So how will China grow in the future? Can
the current population/labor force contribute
to productivity growth in the future?
So: What is the nature of China’s human
capital today? … in poor rural areas ?
• Poor rural areas are:
– all rural areas in western
provinces
– those rural counties that are
in the lower half of income
distribution in provinces in
Central China
(> 80 million children,
ages 6 to 15)
cities
other
rural
Summary
• So you have an ageing society … mostly
rural …
• Everyone is moving out of agriculture
• But, no one is being integrated into the city
**************
• So how will China grow in the future? Can
the POOR RURAL population contribute to
productivity growth in the future?
Probability of a child from a poor
rural area going to college (relative
to child from the city)
Times (x)
25
Urban
20
21x
15
Urban
10
13x
Urban
5
Poor
Rural
8x
0
Any college
Poor
Rural
Four Year College
Poor
Rural
Elite College
Today’s Labor Force
College/University Attainment
________________________________________________________________________________
Total Labor Force
< 10%
While all kids do not need to go to college, all
children should be going to high school … to
get skills for workforce 10 to 20 years from now!!
This is critical at this stage of development
to get all children the skills they will need
in the future
• Why?
How Expensive are Chinese Workers?
Manufacturing Wages 1994-2008 (USD/year) China
4500
China
India
Indonesia
Philippines
4231
Thailand
4000
3500
3000
3481
Philippines
2849
2338
2500
2000
2018
Thailand
2833
1638
1500
1180
1075
497
481
Indonesia
367
433
China
1000
500
0
1994
1996
1998
2000
India
2002
2004
2006
2008
Source:
International
Organizationthis
LABORSTA
Database
Of course, as we will see
later
in the Labor
presentation,
also has
implications for farming
≈ $3.00 /
hour in
2014
Annual Real Hourly
Wage (1978 dollars)
≈ $2.00 /
hour in
2011
4000
2000
Unskilled wage
≈ 30 ¢ / hour
in 1978
0
1978 1983 1988 1993 1998 2003
Year
2010
Implications
• China continues to grow: RISING
DEMAND
• Size of labor force falls:
SUPPLY
FALLING
By 2025 
Rising wages in the future around
$10/hour or
more!
Changing industrial structure
Moving main base of
manufacturing to Vietnam
over next 5 years
Big question at Apple:
Where will the iPhone 8
be made?
Summary
• So you have an ageing society … mostly
rural …
• Everyone is moving out of agriculture
• But, no one is being integrated into the city
• Low wage manufacturing is leaving
**************
• So how will China grow in the future? Can
the current population/labor force contribute
to productivity growth in the future?
But, with higher wages, can
China move itself up the
productivity ladder?
“Textile worker” in high wage
countries
“made to order” Gucci shoe factory
To do his job, he needs to be
HEALTHY and competent in math,
language, English and computers …
Will these young women … who are working
in China’s textile plants now … be able to do
the job in a modern high fashion textile
plant?
Unfortunately, most
barely know how to
read and write …
why?
While all kids do not need to go to college, all
children should be going to high school …
to get skills for workforce 20 years from now!!
… as we have seen from the discussion
above, this is critical at this stage of
development to get all children the skills
they will need in the future
• BECAUSE: Less 40% of junior high grads
in poor rural areas go on to any type of
high school ..
High School Gap in China today
China in the 2013
Percent of
students
that go to
any High
School
100
≈90%
80
60
37%
40
20
0
Large cities
in China
Poor rural
areas
Mexico in the 198
Even more bleak what examining the stock
of human capital
2010 Census
data
2010 Census
data
Total labor force
Today’s Labor Force
Upper Secondary Attainment
= 24%
________________________________________________________________________________
Total Labor Force
How does that compare to the rest of the world?
Share of Labor Force that Attained Upper Secondary
Education, Middle Income Countries
Country
•
•
•
•
•
•
•
Turkey
Brazil
Argentina
Mexico
South Africa
Indonesia
China
Share
in 2010
Share of
25-34 year olds
in 2010
31
41
42
36
28
24
24
42
53
49
44
34
31
36
Average Middle Income 32
41
OECD
72
74
Results (2010)
• China’s stock of human capital (share of entire
labor force with high school education) is:
– With the exception of India, is the lowest of all BRIC
countries … and also lower than most other Middle Income
countries
• Lower than Brazil, Russia, South Africa
– Equal to Indonesia
– 1/3 level of OECD countries
• 74% vs. 24%
• Lower than Mexico; lower than Turkey
• If China joined OECD it would be the EXTREME OUTLIER
• Same is TRUE for youngest cohort (25-34 yr olds)
Share of Labor Force that Attained Upper Secondary
Education, Middle Income Countries
Country
•
•
•
•
•
•
•
Turkey
Brazil
Argentina
Mexico
South Africa
Indonesia
China
Share
in 2010
Share of
25-34 year olds
in 2010
31
41
42
36
28
24
24
42
53
49
44
34
31
36
Average Middle Income 32
41
OECD
72
74
Drop out rates from Junior High
School, Urban and Rural
31%
≈2%
What are kids who are dropping out
of Junior High today (they are 13
years old) going to do in 2030
(when they are 28 years old)?
• They barely know how to read
• They barely know how to write
• They are angry at the school system for
ignoring them … and this translates into
anger at the government & society!
Outcomes
Anemia (%)
Worms (%)
Myopia (%)
Wasted (Z-score)
Stunted (Z-score)
Math Scores (SD)
Chinese Scores (SD)
English Scores (SD)
Drop out rates (%)
Mental Health (at
any risk -- %)
n = 133,000
ALL Children in
Rural China
27
33
20
-0.55
-1.01
-1.01
-0.98
-1.45
19
74
MAIN POINT HERE
• MESSAGE:
– A large share of Rural China’s Children
have Poor
• Health
• Nutrition
• Education
• China’s rural children are NOT ready for
migration … or for employment in China’s
future economy
In fact, the problem probably
almost certainly begins
BEFORE children have entered
school
What are the Cognitive Outcomes of China’s future
labor outcomes when they are infants/toddlers
3 prefectures (collection of
counties)
• Shangluo Prefecture
• Ankang Prefecture
• Hanzhong Prefecture
What are the Cognitive Outcomes of China’s future
labor outcomes when they are infants/toddlers
All babies are
being given an
Infant IQ test
(Bayles test)
Share of China’s rural
infants/toddlers with poor
cognition
Share of toddlers
with Bayles scores
on Cognition Scale
that are less than 85
(= IQ less than 90)
22%
53%
6 to 12
Months
24 to 30
Months
Ultimate Consequences:
If the micronutrient deficiencies of
infants / toddlers are not corrected
before baby is 30 months old 
• Life time effects on:
– IQ
– Mental health
– Height
– Weight
– Health
What does this mean?
In harshest terms:
Nearly > 33 percent of China’s future
population (100s of millions of people)
are in danger of becoming
PERMANENTLY cognitively
challenged
If a person has an IQ under 90, what does it mean? That he/she can
not go to high school … they do not learn math, science, language …
dead weight in a high wage, high income society … large share of
these kids being born now are likely to be alive in 2100 …
Summary
• So you have an ageing society … mostly
rural …
• Everyone is moving out of agriculture
• But, no one is being integrated into the city
• Low wage manufacturing is leaving
**************
• So how will China grow in the future? Can
the current population/labor force
contribute to productivity growth in the
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