by Karen Eggleston, Qiong Zhang

September 2, 2011

To understand the changes looming in the offing, recall recent history for a moment. Back when reform and opening was getting underway, the government unveiled a host of policies that boosted the productivity of China’s youthful population. These included the expansion of compulsory education and efforts to boost college enrollment, the development of labor-intensive industries and expansion of exports, the relaxation of regulations on labor flow, and heavy investments in infrastructure. Some academics estimate that such policies created a ‘demographic dividend’ that contributed about 15 percent of China’s outsized growth in output per capita between 1982 and 2000. But more recently, this demographic boost has begun disappearing as the baby boom behind that productivity spike has started to gray. Soon population aging will slow the growth of the working population and increase the number of dependents per worker – a key marker of productivity potential that is now turning to China’s disadvantage. Can social, economic and policy changes turn a period of growing old age dependency into one of positive opportunity and growth? Against this more complex back drop, the list of economic challenges is extensive. China must remain internationally competitive and spurs productivity. But at the same time, it needs to increase domestic demand, promote the development of human capital, establish old-age support programs, and redistribute income to reduce the burgeoning disparities in income and wealth that may threaten social cohesion.

China’s population has experienced two ‘baby booms’, one following the civil war and a second in the early 1960s after recovery from the Great Leap Famine. The echoes of these large cohorts, as they matured into child-bearing years, and variations in strictness in the population control policies, are reflected in China’s population pyramid. These population cohorts of different sizes can lead to large annual changes in the labor pool (representing 8-10 million people). Such dramatic variations in the size of labor populations by age complicates government efforts to develop sustainable programs to train young workers or provide pensions.Anothe important demographic challenge, with deep roots in China’s history, is the re-emergence of a gender imbalance, now abetted by enabling technologies (e.g. ultrasound and sex-selective abortions). The large gender imbalance of China’s population, with the sex ratio at birth starkly favoring boys over girls, implies China will have millions of ‘forced bachelors’ over the coming decades. Men and women will also experience aging in different ways.

The traditional reliance on male children for elderly support will no doubt undergo further erosion, as it already has with the large-scale migration of rural population under long-term low fertility and increased financial support from migrant daughters. The economic impact of reduction in working-age population can be partly offset by greater female labor force participation and less gender discrimination. As is true around the world, women in China have longer life expectancy than men and therefore can expect to spend a part of their retirement lives without a spouse. For men, the poorest strata will increasingly

by Karen Eggleston, Qiong Zhang

September 2, 2011

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