Human Capital of China

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Human Capital of China

• Lecturer Zhigang Li

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Outline

• Population Growth
• One-Child Policy and consequence
• Labor market
• Household registration system
• Floating population
• Return to education

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Population Size of China

• China now accounts for 20 percent of World
  population (30 percent in the 1950s).
• Pre-modern population growth rate 0.4
• By the mid-1950s the population was growing more
  than 2 per year.
• Two-Child, but Wait, Policy (1971-79) Total
  fertility rates dropped from 5.8 to 2.7.
• One-Child Policy (since September 1980)

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Implementation of the One-Child Policy

• An array of measures
• Mandatory insertion of intra-uterine devices for
  women with one child, sterilization for couples
  with two or more children, and abortion for
  unauthorized conceptions.
• Strictness fluctuated
• One-and-a-Half-Child Policy
• Implementation of the policy was delegated to
  local government.
• Substantial financial penalties (equal to
  households annual income) may be imposed.

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Consequence of the One-Child Policy (I)

• The policy has never been fully successful. About
  half of total births were second or higher order
  births in most years.
• The level of coercion varies widely for different
  regions of China. The demand for coercion also
  vary and may depend on the economic growth
  levels.
• Shanghais TFR in 2000 was .68.
• Extremely unbalanced sex ratio due to the
  preference for boys.
• In late 1930s B(120)G(100)
• 1960s and 1970s B(108)G(100)
• 2000 B(120.8)G(100)

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Explaining the Missing Girls

• Hidden girls
• 12 more 10-year-olds were recorded in the 2000
  census than newborns in the 1990 census. This
  could account for as much as one-third of the
  missing girls.
• Sex-selective abortion Diffusion of ultrasound
  machines has been associated with worsening
  gender imbalances in many Asian societies.
• Mortality rates for girls are higher than those
  for boys, a abnormal pattern.

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Dependency Rate

• Dependency rate The percentage of children and
  seniors.
• China will enjoy low dependency rate during
  2005-2015.
• Reduced number of children due to birth control
• Baby boomers (and echo) 1960s and late 1980s.
• Dependency rate steadily increases from 2010.
• The effect of birth control weaken
• Baby boomers

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Consequence of the Dependency Rate Dynamics

• Declining dependency rates imply more rapid
  growth of per capita GDP.
• Declining dependency rates may increase the
  saving rates and investment rates
• A young population is more adaptable and able to
  accept the rapid social changes and accompanied
  the shift to a market economy.

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Growth of Working-age Population (percent)

• Table 7.3
• Year National Rural Urban
• 82-90 2.5
• 00-05 1.6 -0.1 4.1
• 10-15 0.5 -1.6 2.5
• 20-25 0 -2.3 1.5
• 35-40 -0.8 -3.9 0.3
• 45-50 -0.6 -3.6 0.0

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Supply to the Labor Market

• Labor supply
• About 50 million workers, 40 of the
  public-enterprise workforce, were laid off since
  mid-1990s.
• Rural-urban migration
• Farm-Non farm migration
• A generation of rural residents is leaving the
  land, and the process appears to be accelerating
  in the decade after 2000.
• By 2000, 76 of the 16-20 age group had some kind
  of off-farm work.

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Household Registration and Social Stratification
1955-96 (Wu et al, 2004)

• The hukou (household registration) system
• Hukou determines access to jobs, education,
  housing, health care, and right to move.
• Two Classifications
• Place of Registration Ones residential
  location.
• Type of Registration Divide the population into
  agricultural and nonagricultural sectors
• Hukou status is inherited
• Restrictive when markets (i.e. rental markets,
  health service market) are underdeveloped

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Empirical Evidence

• 1996 national survey of Chinese Life Histories
  and Social Change in Contemporary China
• 6,090 adults aged 20-69
• Patterns
• Good education strongly increases the odds of
  converting rural to urban hukou.
• The Communist Party membership substantially
  increases the odds of hukou conversion, although
  not as much as does education.
• The results for military experience are mixed.
• Rural hukou status significantly decreases
  educational attainment and the chance of gaining
  CCP membership.
• Women are more likely to successfully convert
  hukou.

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Hukou Reform 1997-2002(Wang, 2004)

• The hukou system largely survived the two-decade
  economic reform and opening of China.
• The 1997-2002 Reform (I)
• A general relaxation of internal immigration
  restrictions especially for elderly parents,
  children, and talents.
• The rural-to-urban migration quota system in all
  small cities and towns are abolished in October
  2001.
• Those with stable non-agricultural income and a
  permanent residence in a small city or town for
  over two years automatically qualify for an urban
  hukou.

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Hukou Reform 1997-2002

• The 1997-2002 Reform (II)
• The localized practice of selective migration
  (for talents and investments) to the major cities
  is further polished and nationally adopted.
• A national wave of erasing the rural/urban
  distinction in the hukou system took place in
  2001-2002.
• Two leading functions after reform
• Internal migration control (with reformed
  mechanisms)
• Socio-political management of the targeted people

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Zhongdian Renkou(Targeted People)

• Residents suspected of threatening national
  security
  
  
  
  
  
• Residents suspected of serious criminal
  activities.
• Residents who have shown early signs of violent
  revenge, making trouble and other violent acts
• Residents who were ex-convicts as a result of
  purposeful crimes and released wihtin the last
  five years
• Narcotics users

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Floating Population(Liang and Ma, 2004)

• Floating population Migrants without local
  household registration status.
• Inter-county floating population
• In 1982 7 million
• In 1990 22 million
• In 1995 44 million
• In 2000 79 million (Guangdong 21 million)
• Intra-county floating migration contribute
  another 66 million to the size of the floating
  population.
• City-origin migrants accounted for 15 percent of
  the interprovincial floating migrant population

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Interprovincial Migration 1985-2000 (Fan, 2005)

• Also using national census data (1990 and 2000)
• Inter-provincial migration became more
  unidirectional and concentrated.
• Over time, the effect of regional disparity has
  increased and the effect of distance decreased.

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Leaving Chinas Farms Paths and Hurdles (Rozelle
et al., 1999)

• Questions
• Are the poor and those without local wage-earning
  opportunities more likely to migrate?
• Is chain migration important? If so, is it due to
  information and social network effects or due to
  transportation costs and proximity to urban
  regions?
• Do rural institutions prevent people from
  leaving, push people off the farm, or are they
  neutral?
• Does human capital facilitate entrance into the
  migrant labor force?

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Answers to the Four Questions

• Rich or Poor?
• Poorer (fairly remote but less rural) villages
  see most outmigrants
• Information or Transport Costs?
• Ease of transportation (approximated by the
  existence of a bus route through the village) is
  an insignificant determinant of migration. The
  availability of numerous buses, good roads and
  cheap fares does not matter.
• Note that 43 of villages with bus routes had
  their own village enterprises compared to 25 of
  those without.
• A villages migration network (approximated by
  lagged migration) is a significant factor.

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Further Findings

• Rural Institutions Important?
• Generally rural institutions have a smaller
  impact on long-term migration.
• Mandatory grain surplus delivery requirements
  have insignificant impact on migration.
• Land security also has little effect.
• Existence of land rental markets increase
  migration probability.
• Does Education Matter?
• Insignificant after controlling for other
  factors, e.g. age.

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Chinas Human Capital Investment(Heckman, 2005)

• Current HC investment is too low
• HC investment is highly beneficial in China
• HC investment is inequitable and inefficient

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Benefits of Human Capital Investment in China

• The rate of return to physical capital investment
  in China is as high as 20.
• In the US and many other countries the rate of
  return to HC is as high as 15 to 20.
• The rate of return to HC in China
• 4-7 in the 1990s by the wage approach
  (comparing wages of people with different
  education)
• 30-40 by the social return approach (compare
  the productivity of people with different
  education)

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Underinvestment and Inefficient Distribution of
HC Investment

• In 2002 the public expenditure in education is
  about 3.3 of GDP while 45 of GDP was invested
  in physical capital.
• Educational expenditure is tied to the wealth of
  a province.
• The place of a persons birth is one of the most
  important determinants of that persons adult
  skill level (Knight and Song, 1999).

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Attainment in Basic Education in China (Tsui,
1997)

• Data Three sample surveys on children by NBS.
• Main findings
• Major expansions of the basic education system
  took place before and during the Cultural
  Revolution (except for the 1959-61 famine)
• Rural as well as urban basic literacy rates
  improved continuously over time.
• There is a long-term convergence in the
  rural-urban gap in the illiteracy rates.
• Within-provincial basic literacy rates changed
  little during 1981-1990. However, interprovicial
  disparity in basic literacy increased.

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Childrens Social Welfare in China, 1989-1997
(Adams and Hannum, 2005)

• Question How has the fundamental change in
  Chinas finance system (more localized and
  market-oriented approaches to social service
  provision) affected human-capital-related social
  services?
• Medical care
• Basic education
• Data China Health and Nutrition Survey (1989,
  1993, and 1997)
• Access to health insurance
• Enrolment and grade-for-age attainment

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Welfare Reform in China

• Health
• By 1975, insurance coverage reached about 90 of
  the population (almost all urban population and
  85 of the rural population).
• Some earlier studies suggest that overall
  insurance rate dropped from 26 in 1989 to 23 in
  1997.

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Empirical Findings

• Education
• Children in the top quartile (family resources)
  is 2.5 times more likely than those in the bottom
  quartile to be enrolled in school
• Children in high-income community were 2.2 times
  more likely than those in low-income community to
  be enrolled in school
• Contribution of community funds to local
  education is increasingly important.

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Return to Education(Maurer-Fazio, 1999)
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Return to Education(Li, 2003)