Demographic dividends shift from quantity to quality

By HUANG FAN and DUAN CHENGRONG / 06-10-2021 / (Chinese Social Sciences Today)

Students pose for graduation photos at Hubei University of Arts and Science in Xiangyang, central China’s Hubei Province, on May 29. The rapid development of higher education has laid a significant foundation of talent resources for high-quality economic growth. Photo: CFP

Since reform and opening up, the Chinese economy’s sustained high growth has been a global miracle. Many scholars argue that demographic dividends generated from population changes, especially dividends from the large working population, have contributed a great deal to this miracle. 

However, with the acceleration of population aging, the size and share of the working-age population has been decreasing since 2012, provoking worries over further economic development. As the industrial structure upgrades and transforms, and advanced technologies innovate continuously, high-quality economic growth has been less dependent on the labor force’s quantity, and places increasingly high requirements on labor quality. 
Data from China’s Seventh National Population Census shows that there are actually opportunities in the crisis of diminishing dividends from the population size. Newly surfaced population quality dividends will gradually replace quantity dividends, to turn China from a populous nation into a talent power and lend momentum to high-quality economic development. 
Vanishing quantity dividends
Academics generally define quantity-based demographic dividends as the contributions made by population structures in which the working-age population grows rapidly and makes up a large share of the total population. Demographic quantity dividends not only bring about massive labor factor inputs and transfer rural surplus labor to boost the efficiency of workforce allocation, but also lead to high saving rates due to low population dependency ratios. Nonetheless, the quantity dividends are declining with population aging. 
First, the size and share of the working-age population has been falling. According to previous censuses, Chinese people of working ages from 16 to 59 years old numbered 570 million in 1982, accounting for 56.5% of the total population. Thereafter, the size and share kept rising, arriving at 700 million in 1990 (61.8% of the total), 810 million in 2000 (65.0%), and 920 million in 2010 (68.7%). 
With changes in population structures, both the size and share of the working-age population declined for the first time in 2012, and the downtrend has been continuing. Nonetheless, the seventh census shows that the Chinese working-age population was still as large as 880 million in 2020, accounting for 62.4% of the total population. Although the absolute amount of labor resources remains large, and there are still demographic quantity dividends, the downward trend of the working-age population is irreversible. 
Second, population aging has been accelerating, with the total dependency ratio going up. Alongside the dwindling working-age population, Chinese society ages steadily. The elderly population’s size continues to grow. In 1982, there were only 77 million seniors above 60 years old, and 49 million above 65 in China. In 2020, the population of seniors 60 years or above reached 260 million, and seniors over 65 hit 190 million, up 244.5% and 286.9%, respectively. 
Evidently, the aging process has quickened. From 2010 to 2020, the proportion of people older than 60 rose by 5.4 percentage points, and people aged above 65 increased by 4.6 percentage points. Compared to the period from 2000 to 2010, this is an increase of 2.5 and 2.7 percentage points, respectively. 
In addition, the population dependency ratio stopped declining and has been on the rise. In 1982, the Chinese population’s total dependency ratio, which is the sum of the number of children aged 0-14 and seniors 60 and older divided by the number of working-age people between 15 and 59 years old, reached 70.2, and then continued to decline to 42.7 in 2010, reflecting a reduced dependency burden on the working population. However, in 2020, the total dependency ratio jumped to 57.9. All in all, the population aging trend will further accelerate. The pressure on family-based elderly care and the supply of basic public services is noticeable. 
Surfacing quality dividends
Predictions show that demographic quantity dividends will finally disappear with population aging and falling total birthrates, despite China’s rich labor resources. Past examples of demographic dividends reveal that the key to spurring economic development is not only a high saving rate, but also that seemingly infinite labor supplies turn around the decline of capital returns, thus realizing high returns on investment. Economic development theories and experiences indicate that improving human capital is most important for raising returns on investment. 
In the future, when labor stocks will continue to run low, improved labor quality will be pivotal to bolstering high-quality economic development. Data from previous censuses shows that China’s demographic quality dividends are becoming apparent. 
First, higher education has been developing fast. When it comes to the size of the highly educated population, in 1990 there were only 16 million people who received a college degree or above. The figure rose to 220 million in 2020, nearly 13 times the size of the 1990 population. Relatively, the number of people who hold a college degree or above, per 100,000 people, soared from 1,422 in 1990 to 15,467 in 2020. Meanwhile, the average schooling years of people aged 15 and above rose from 6.4 in 1990 to 9.9 in 2020. The rapid development of higher education has laid a significant talent foundation for high-quality economic growth. 
Second, the quality of the working-age population has remarkably improved. According to the seventh census, the population with an education above the senior high school level, among working-age people aged 16-59, approached 390 million, accounting for 43.8% of the total, up 12.8 percentage points from 2010. At the same time, the working-age population has an average education level of 10.8 years, up 1.1 years from 9.7 years in 2010. The working-age population’s improved quality compensates for its shrinking size, which is critical as China substitutes demographic quality dividends for quantity dividends. 
Furthermore, the illiteracy rate has dropped. In past decades, China has made great achievements in popularizing compulsory education and eliminating illiteracy. Specifically, the illiterate population shrank from 230 million in 1982 to 38 million in 2020, down 83.6%. The share of illiterate people in the total population declined by 20.1 percentage points from 22.8% in 1982 to 2.7% in 2020. This is significant for closing gaps in the Chinese population’s education levels.
Tapping quality dividends
In the face of accelerating population aging and dwindling labor forces, efforts should be made in the following aspects to fully tap quality-based demographic dividends. 
It is essential to develop education at all forms and levels to build a multi-level talent cultivation system. Education’s development should first focus on scaled expansion, as reflected by lengthened schooling years. Scholars have estimated that an increase of 1.3 schooling years is required for laborers to shift from labor-intensive to capital-intensive jobs in the secondary sector, and 4.2 more schooling years are needed to secure technology-intensive employment in tertiary industries. 
In the past, the popularization of compulsory education largely resulted in increased schooling years of the working-age population. As enrollment rates in compulsory education gradually approach 100%, future increases of schooling years necessitate the extension of the nine-year compulsory education system to early education as well as the three senior years of high school, perhaps even expanding into higher education. 
With high-quality economic development, jobs will become more demanding, so a structural mismatch between laborers’ skills and jobs will be a prominent problem in employment. Thus it is crucial to vigorously develop vocational education and skill training to promote full employment, providing fresh talent as Chinese industry enters the middle and high end of the global value chain. 
Innovation is the primary development engine and strategically supports the construction of a modern economic system. In general, China has made considerable progress in human capital development, but there is still a gap with developed countries in terms of the quantity of innovative talent, particularly top-notch innovative talent. 
In recent years, the Party and governments at all levels have rolled out a series of strategies and policies to cultivate and attract talent, and have already achieved good results. Further efforts are needed to foster local high-level talent and create a favorable environment for talent to thrive, while leveraging policy advantages to inspire overseas talent to return. 
Also, active population aging should be advanced to encourage the elderly to participate in labor. Health, participation, and security are the three pillars of active aging. Regarding health, the life expectancy of Chinese people has continued to rise. In 2020, the number of seniors aged 80 and above reached 36 million, up by 15 million from 2010. This group’s share of the total population increased from 1.6% in 2010 to 2.5% in 2020. The improvement of health suggests that a prolonged timeline for seniors’ social participation has been ensured. 
The current low labor participation rate of aging populations is inseparable from China’s long-established young retirement age policy. In fact, there is huge potential to tap in the retirement age, which is partly why China has formulated progressive postponed retirement schemes. However, postponed retirement is temporarily unacceptable to many employees. 
Therefore, raising seniors’ labor participation rates not only requires that senior citizens make decisions based on their own abilities, needs, and willingness, but also promoting the benefits of remaining active through older ages. Certainly, encouraging seniors to participate in labor should be preconditioned upon further improving the basic social pension insurance system, thus reducing their anxieties about the future. 
Huang Fan is from the School of Sociology and Population Studies at Renmin University of China. Duan Chengrong is a professor from the Center for Population and Development Studies at Renmin University.