China’s Working Age Population Shrunk by 46 Million in a Decade

On May 11, the National Bureau of Statistics released the results of its seventh National Census. These once-a-decade enumerations of China’s population provide the most comprehensive picture of the nation’s demographics. Media reports focused on the slow growth in the overall number of people and the aging of Chinese society. They warned that China faced a “demographic crisis”.

Indeed, from a macroeconomic perspective, the news was not good.

The key data point was the decline in the population aged 15-59, from 940 to 894 million since the previous census in 2010. This is China’s “working-age” population. The five percent drop in the pool of potential workers – 0.5 percent per year – represents the loss of a key input for building GDP.

Looking ahead, the news only gets worse.

The decline in China’s working age population is expected to accelerate over the coming decades. Projections from the United Nations suggest that between 2020 and 2050, the amount of 15-59 year-olds will fall by 23 percent, or 0.9 percent per year.

What does this mean for GDP growth?

According to standard models, a 1 percentage point decline in employment translates into a fall in GDP growth of 0.55 percentage points. If a constant share of the working-age population is employed, then the projected decline in the 15-59 year-old group would shave 0.5 percentage points off of annual GDP growth over the next 30 years.

China will likely grow between 4-5 percent per year over the next 15 years and perhaps between 2-3 percent per year over the following 15 years. So, losing ½ a percentage point in growth due to unfavourable demographics should not prevent Chinese people from increasing their standard of living.

However, with workers comprising a falling share of the population, their earnings will have to be spread more widely in order to support an increasing number of dependents.

Figure 1

Figure 1 shows the outlook for China’s dependency rates to 2050, based on projections by the United Nations. China reached its demographic peak in 2008. At that time, the working-aged comprised close to 70 percent of the population, with the young and the old together accounting for the remaining 30 percent. The share of those 60 and over is expected to rise rapidly and reach 35 percent by 2050. Those under 15 will fall to 14 percent and the working-aged will account for 51 percent of the total population.

Figure 2

China is not alone in facing this sort of demographic challenge, although its transition over the next three decades is predicted to be among the most extreme. Figure 2 shows the working-age population (here we use 15-64) as a share of the total population for the G20 countries in 2020 and in 2050.

In 2020, the Chinese economy benefited from a relatively high share of working-age people. It ranked third after Saudi Arabia and Korea. However, by 2050 China’s ranking will fall to seventh lowest. Only Korea and Italy are expected to experience more precipitous increases in dependency.

So, what can be done to manage this demographic decline?

One obvious policy response would be to increase the retirement age. In China, female workers currently retire at 55 and males at 60. These low retirement ages appear to be an artifact of earlier years, when the priority was to ensure the employment of young people. Around the world, governments are worried about the effect of poor demographics on their pension systems and they are trying to find ways to keep people employed longer. There is no reason why China cannot be part of this trend.

Raising the retirement age by five years would give the Chinese economy access to a pool of close to 80 million additional workers. However, even the 15-64 age group is expected to decline over time.

Figure 3

Suppose China gradually phased in a five-year increase in the working age over the next 30 years, consistent with the dashed line in Figure 3. The resulting decline in the working-age population would only be 10 percent, compared to the 23 percent fall in the 15-59 age group. Thus, raising the retirement age by five years doesn’t eliminate the problem of demographic decline, but it cuts it by more than half.

With labour increasingly at a premium, China needs to make the best possible use of its workforce. Yet, the large differences in productivity across the three broad sectors of the economy suggest potentially large gains from reallocating workers.

Figure 4

Figure 4 shows productivity – real GDP per worker – in agriculture, manufacturing and services. Productivity in each of these sectors has increased over time. Still, it remains much lower in agriculture than in manufacturing and services.

Agriculture employs about a quarter of China’s workforce. What kind of productivity increase might we expect if some of these farm workers shifted to more productive undertakings?

Let’s do a thought experiment. Let’s assume that current levels of productivity and the overall size of the labour force are unchanged. Now, let’s reduce the share of workers in agriculture from 25 percent to 10 percent. This is not an extreme assumption. Agriculture’s share of China’s workforce actually fell by 25 percentage points over the last two decades. Moreover, in OECD countries, agriculture only employs 5 percent of the workforce.

We now re-employ these workers in the service industry, where productivity is close to four times as high. In this thought experiment, the reallocation of labour raises GDP by 12 percent. If we would allow this transition to take place over 30 years, the increase in annual growth would be 0.4 percent – enough to offset much of the impact of the decline of the 15-59 year-olds.

In the preceding thought experiment, we left productivity unchanged. However, it is likely that productivity will continue to increase such that a Chinese worker 30 years from now will be capable of supporting more dependents than a worker today.

One of the key channels through which productivity increases is education. According to economic theory, workers become more productive as they accumulate “human capital”, which is modelled as proportional to the number of years of education.

The recent census shows that China’s educational attainment continued to increase. In 2020, those aged 15 and above had, on average, 9.9 years of schooling. That was up from 9.1 years in 2010:

Over the next 30 years, it is reasonable to expect that educational attainment will increase further. Let’s assume that average years of schooling rises to 12.2 years by 2050. That’s where Korea is today. By comparison, Germany is at 14.2 and Canada, Switzerland and the US are at 13.4.

If human capital increases one-for-one with years of education, that means that after 12.2 years of schooling, the average worker would be 23 percent more productive than one today. Thus, the increase in productivity would fully offset the effect of the decline in the population aged 15-59.

The results of the census have already caused a re-think of China’s population policies. This week, the government relaxed restrictions and allowed families to have three children. However, encouraging couples to have more children is likely to be difficult, especially in cities, given the high costs of living.  Moreover, policies to increase the retirement age are liable to be unpopular, as Chinese grandparents provide important non-paid work, which facilitates their children’s participation in the labour force.

However, the good news is that further educating the workforce and reallocating it more efficiently are potentially very effective tools for managing China’s demographic decline.

Source: Yicai Global

Comments (14)
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  • speciem libertatis

    Nothing Burger article:

    Chinese population 2020: 1.412 Billion
    In 2020, about 64.9 percent of the population in China was expected to be of working age between 15 and 59 years
    The workforce in China amounted to around 800 million people!!!!! (roughly 2.5 the entire US population) (LET THAT SINK IN)

  • Godfree Roberts

    Nope. China’s active labour force will remain steady or slowly increase until 2050, based on the working hours reserves for the population capable of participating in economic and social activities following continuing health improvements and continual gains in education. Read full article →

  • ken

    This article is repeating what was/is warned in the West. Supposedly the reduction in the younger workforce will effect retirement and other ponzi schemes as these eat up resources for the really super duper important stuff, like defense appropriations.

    But what happened (in the West) was the offshoring of well paying jobs and the inflation of currencies while increasing the payments and the number eligible to receive gov handouts. This is naturally occurring in any socialist government.

    In the US, within a generation, the workforce went from a high paying manufacturing base to a service based economy providing one third of gross receipts to government. Obviously programs implemented under a manufacturing base cannot be maintained under a service economy without serious consequences.

    Then,,, governments had no problem shutting their economies down over a flu with a horrifying 99.87% survival rate so why the concerns over a change in demographics which happens cyclically?

    The change in demographics is not the major problem,,, the major problem is, as always, and always, and always, oligarchs using government in a quest for total control of resources and production….

  • ron

    Western funded research by people connected to the Western Financial Order (i.e IMF, World Bank). Just like the current virus hoax, you can focus on “hand picked” statistics to prove an argument but in reality is simply not true. Take a step back and look at the results over the last 50 years. Does China look like a country run by people who do not think ahead? Is the West doing any better than they were compared with 50 years ago with all this “Statistical Analysis”. Every country will encounter demographic changes and must act to balance it’s pros/cons. Judge by “results not words” and if doing so, it is clear the Chinese leadership acts and has their ship sailing straight ahead whereas in the West they talk and the ship is clearly sinking.

  • Raptar Driver

    This is a good thing.There are too many of them.
    Anybody who has studied basic biology knows that when a certain species over populates in a given area it becomes stupid and eventually starves to death.

    • speciem libertatis

      I know a lot of people that would say the US has too many debt beats and useless people
      Stay classy and focus on being positive
      people are people

      • Raptar Driver

        Agreed.
        The condition is not isolated to china

    • yuri

      racist rat driving his horse and buggy

      • Raptar Driver

        Yuri mcflurry!
        The made in McDonald’s Russian Whatever the hell you are?

      • Raptar Driver

        Our population is stable at about 200,000,000.
        China is a different story.
        So is India
        Every given area has it’s Sustainable populations.
        This is simple biology, get over your emotions, they make you stupid.

  • yuri

    I doubt this analysis. Chinese are becoming more educated, more competent more innovative they have eradicated all extreme poverty, unlike USA w 3 million families in extreme poverty–this ignores the 1 million homeless, nearly none in china and the 3 million incarcerated inUSA
    amerikans are marginally competent as waitresses–nothing else
    while both Russia and China have reduced poverty, improved education, economies and possess wealth reserves, USA has a 29 trillion$ debt
    “nothing more will damage the morality of a society than the scandal of debt”. Denis Diderot

    • tunamelt

      “unlike USA w 3 million families in extreme poverty”

      Extreme poverty meaning no iphone?

  • Hoyeru

    2050 is a long, log way off. Many things can and will happen by then, including fully automated factories. we wont need that many people by 2050. So less people is a good thing. With digital currency, taxes, people, consumers become meaningless also.