More on China's Age Transition

This week's Economist, like yesterday's New York Times, has a story on China's population, based on a new set of data released by China's National Bureau of Statistics that emphasizes the fact that the working age population is starting to decrease in size. While this reporting raises the question of whether or not China will re-think its One-Child Policy, it also references the same research that I do in my book by S. Philip Morgan (recently named Director of the Carolina Population Center) and his colleagues suggesting that fertility is unlikely to rise much in China even if the government completely got rid of the One-Child Policy. Furthermore, at this point it would be another 15-20 years before that would make a difference in the labor force, even if that were to happen.

The demographic dividend that China has enjoyed in recent decades has kept wage rates low and saving rates high. With fewer children per worker, China has enjoyed a higher income per head, a large chunk of which it has been able to save and invest. The shrinking of the working-age population will put downward pressure on the saving rate and upward pressure on wages, as coastal factories have already found. According to Mr Laurent [of Global Demographics], the number of 15- to 24-year-olds will shrink particularly quickly, dropping by 38m, or 21%, over the next ten years.

Optimists argue that urbanisation can trump demography. Because 47% of China’s population still resides in the countryside, China’s urban workforce still has room to grow at rural China’s expense. Louis Kuijs of the Royal Bank of Scotland points out that urban employment increased by 12m in 2012 even as rural employment fell by 9m.

The point here, and it seems to me like a good one, is that the age transition has been an economic boon to China, but the country has not yet fully exploited its working age population. If those in rural areas can be effectively recruited into the manufacturing labor force, then "disaster" will be postponed. That assumes, of course, that the rural population is sufficiently well educated for these jobs, and that there are not major problems with the household registration system that currently turns rural migrants to cities into "illegal" migrants.