China's Looming Human Capital Crisis: Upper Secondary Educational Attainment Rates and the Middle-income Trap

Abstract

Accumulation of human capital is indispensable to spur economic growth. If students fail to acquire needed skills, not only will they have a hard time finding high-wage employment in the future but the development of the economies in which they work may also stagnate owing to a shortage of human capital. The overall goal of this study is to try to understand if China is ready in terms of the education of its labour force to progress from middle-income to high-income country status. To achieve this goal, we seek to understand the share of the labour force that has attained at least some upper secondary schooling (upper secondary attainment) and to benchmark these educational attainment rates against the rates of the labour forces in other countries (e.g. high-income/OECD countries; a subset of G20 middle-income/BRICS countries). Using the sixth population census data, we are able to show that China's human capital is shockingly poor. In 2010, only 24 per cent of China's entire labour force (individuals aged 25–64) had ever attended upper secondary school. This rate is less than one-third of the average upper secondary attainment rate in OECD countries. China's overall upper secondary attainment rate and the attainment rate of its youngest workers (aged 25–34) is also the lowest of all the BRICS countries (with the exception of India for which data were not available). Our analysis also demonstrates that the statistics on upper secondary education reported by the Ministry of Education (MoE) are overestimated. In the paper, we document when MoE and census-based statistics diverge, and raise three possible policy-based reasons why officials may have begun to have an incentive to misreport in the mid-2000s.

Cognitive skills, noncognitive skills, and school-to-work transitions in rural China

“…This is particularly important in the context of China. China's upper secondary attainment rate is less than one-third that of OECD countries and the lowest among the BRICS countries (Khor et al, 2015). Educational attainment is particularly low in poor, rural areas, as evidenced in our sample of rural youth.…”

“…In short, among the respondents that left school by 2009, 80% did not attend or graduate from high school. The low level of educational attainment is an issue China's leaders cannot afford to ignore since increasing the supply of skilled labor is crucial to support China's further economic growth and transition to an economy based on higher value-added, high-wage industries (Heckman and Yi, 2014;Khor et al, 2015).…”

Human Capital and China’s Future Growth

“…School-age children from rural areas will ultimately comprise most of China's future labor force (Khor et al forthcoming). However, less than 40 percent of children from poor rural areas were attending high school between 2007 and 2012 (Khor et al forthcoming;.…”

“…Even more importantly, rural students face high and increasing opportunity costs from staying in school, even through junior high school. China's labor shortage has rapidly increased the wages of low-skilled workers (Li, Li, Wu, and Xiong 2012), which is a major reason for students dropping out from junior high school (Yi et al 2012).…”

“…The proportion of China's labor force having a college education increased from only 1.1 percent in 1980 to 12.5 percent in 2015. The rapid rise of the level of schooling during the past 30 years was a result of both higher demand, driven in no small part due to rising returns to education (Li, Li, Wu, and Xiong 2012), and higher supply, driven by aggressive government policies that engineered a rising supply of slots in public schools (Li, Ma, Meng, Qiao, and Shi 2016).…”