What Policies should be after Demographic Dividend?

In 2012, working population (15-59-year-old) in China is 937 million, accounting for 69.2% of the total population. However, the number decreased by 3.45 million compared with the previous year, and for the first time, working population appeared absolute decline in a long period of time. On Jan.18, Ma Jiantang, head of the National Bureau of Statistics, pointed out that the working population would steadily and gradually decrease at least before 2030.

In China, the compulsory implementation of the family planning changed the population structure; one of the by-products is the demographic dividend, namely, the economic growth effect caused by the increase in the working population in the proportion of population. This theory was first used to explain the economic growth in Asia tigers and other East Asian countries by David Bloom and Jeffrey Williamson of Harvard University. According to their research, 1/3 of the 1965-1990 East Asian economic growth should contribute to the demographic dividend brought by the change of demographic structure.

For China, this theory also works. Cai Fang et al. and other domestic scholars believe that since 1978, the decrease in the total dependency ratio has contributed to China's savings rate by 5%, and it accounted for more than 1/4 in China's economic growth; If the demographic dividend in the next 15 years is counted, the contribution to the growth of China’s economy caused by population structure changes will be about 1/3. But demographic dividend has its end, and then the long-term economic growth in China will tend to slow down. In the past, many experts predicted the turning point would be in 2015, but as the decrease of working population, China’s demographic dividend meets the end earlier.

So there comes the increasingly severe demographic debt. When the working-age population growth stops, the population structure steps into an aging period, the labor productivity declines, population dependency ratio begins to rise, followed by the economic slowdown. Even so, the residents' income is not necessarily to be reduced, because in the post - period of the demographic dividend, the residents have expected the tendency of ageing, they tend to increase savings rate, and formed the investment in the overseas high-growth economy, so as to maintain a higher income. At that time, GDP growth slows down, but the GNP growth may not slow down, Japan and other countries are the case.

In contrast, China's situation is much worse. First of all, there is a big gap for the labor productivity in the different regions and between urban and rural areas, which makes the situation of "one China, two stages of development" exists between urban and rural areas, between the west and the east. It can be predicted that the decrease in the proportion of working age population will only aggravate the intense degree of the cities competing in the working-age population against the countryside and the small cities. Rural and underdeveloped regions economic growth first began to lack the power, and people there will also step into the dilemma of non-rich before getting old.

Secondly, present unbalanced allocation policies excessively overdraft the contemporary labor welfare. Differing From urbanization path in developed economies, China's urbanization heavily relies on the real estate market for financing due to the undeveloped financial market. As a result, soaring housing prices raise the living cost of the urban labor force, making their wages only slightly higher than the survival cost line for a long time, so they cannot accumulate wealth. In addition, mobility between different classes in China is decreasing. Today, city workers not only cannot accumulate more wealth for tomorrow's pension, they even may not maintain a decent life. Foxconn chain jumps are the case, and the house slaves, the card slaves are also the case.

And then, what are the policies? The urgent priority is to reform the family planning policy. Then, we need to face the transformation of the stock labor, that is, as Ma Jiantang mentioned, to maintain the demographic dividend role in promoting China's economic growth by raising labor productivity, training, flexible employment and other ways.

However, what hinders the improvement of labor productivity? On one hand, the working-age population begins to decline, a large shortage of migrant workers appears in the cities; on the other hand, China's urban registered unemployment rate has maintained at above 4% for a long time, plus the unemployment rate of non-permanent resident population, it is estimated at about 7%; while more than 250 million rural statistics population are engaged in agriculture, the potential unemployment rate is very high. Shortage of labor and labor surplus exist at the same time, the biggest problem of the labor market is not the total quantity, but the structure, which not only wastes the current labor-age population, but also causes the differences in economic growth among regions, and all these originate from the household registration system.

Therefore, under the background of structural imbalances in the labor market, education training, improvement of labor skills are just small improvements to the labor productivity, the barriers of the household registration system is a very important reason why the demographic dividend failed to benefit the employees, and it also restricted the period of the demographic dividend, and restricted the possibility of labor forces depending on the accumulated wealth to improve property income.

Further, China’s factor markets are inhibited, and there are serious distortions in the configuration of the land, capital and other resources, which not only harm the efficiency, but also lead to a number of structural crises. These problems together with the household registration system constrained the realization of the value of labor, which is also the biggest obstacle for the sustainable economic growth. Of course, for free factor markets, it needs political reform and the breakthroughs of decision-makers.

Originally published on Times Weekly | 2013-1-24