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

3. Explaining the Rural Trend

So what motivates these questions?

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 farmers.

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 workers exit agriculture.

Young men led the growth of off-farm employment (especially employment in low-wage, 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)

0

5

10

15

20

25

Any college Four Year College Elite College

Times (x)

PoorRural

Urban

Urban

Urban

8x

13x

21x

PoorRural

PoorRural

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)

Source: International Labor Organization LABORSTA Database

China

Thailand

Philippines

IndiaIndonesia

China

Of course, as we will see later in the presentation, this also has implications for farming

0

2000

4000

1978 1983 1988 1993 1998 2003

Year

Unskilled wage

2010

≈ $2.00 / hour in 2011

Annual Real Hourly Wage (1978 dollars)

≈ 30 ¢ / hour in 1978

≈ $3.00 / hour in 2014

Implications

• China continues to grow: RISING DEMAND

• Size of labor force falls: FALLING SUPPLY

Rising wages in the future

Changing industrial structure

By 2025 around $10/hour or more!

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

Percent of students that go to any High School

China in the 2013 Mexico in the 1980s!

37%

≈90%

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 ________________________________________________________________________________

Total Labor Force= 24%

How does that compare to the rest of the world?

Share of Labor Force that Attained Upper Secondary Education, Middle Income Countries

Country Share Share of in 2010 25-34 year olds

in 2010

•Turkey 31 42•Brazil 41 53•Argentina 42 49•Mexico 36 44•South Africa 28 34•Indonesia 24 31•China 24 36

Average Middle Income 32 41

OECD 74 72

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 Share Share of in 2010 25-34 year olds

in 2010

•Turkey 31 42•Brazil 41 53•Argentina 42 49•Mexico 36 44•South Africa 28 34•Indonesia 24 31•China 24 36

Average Middle Income 32 41

OECD 74 72

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 ALL Children in Rural China

Anemia (%) 27Worms (%) 33Myopia (%) 20Wasted (Z-score) -0.55Stunted (Z-score) -1.01 Math Scores (SD) -1.01Chinese Scores (SD) -0.98English Scores (SD) -1.45Drop out rates (%) 19Mental Health (at any risk -- %)

74n = 133,000

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)

53%22%

6 to 12 24 to 30 Months 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 future?

http://reap.stanford.edu52