China’s labor force participation rate is falling, shrinking the nation’s pool of workers further, pressuring wages and dragging down growth. Some demographers say that’s a good thing.
The participation rate — defined as people who can work, are looking for work or are in jobs, divided by the total working-age population aged 16 to 65 — fell from just over 77 percent in 2010 to 72.4 percent in 2015, according to research by Jia Peng at the Chinese Academy of Social Sciences in Beijing. The fall is exacerbating a tightening of the nation’s labor market, where the working age population began falling in 2012.
“All age groups and both sexes have experienced a decline of the labor force participation rate,” said Cai Fang, a top demographer and member of the Standing Committee of the National People’s Congress. “You can still see a labor shortage in many places. That’s why even for 2016 the economic growth rate slows down to lower than 7 percent.”
China is struggling to maintain manufacturing competitiveness as rapid aging causes its workforce to shrink and wages to rise faster than productivity gains. Because the participation rate is still high by global standards, it likely has further to fall, complicating the challenge for leaders in supporting growth while they try to reduce the economy’s reliance on credit-fueled investment.
A decline in the participation rate for young adults aged 16 to 22 contributed about 35 percent to the overall fall, with the remainder of the declines between 2010 and 2015 coming from “almost all ages of the working population,” Jia said.
The fall is a surprise to Cai, an adviser to the government on demographic and labor-market issues, who had earlier estimated that the economically active population would peak this year, he said. He is also vice president of the Chinese Academy of Social Sciences.
Wang Feng, a professor of sociology at the University of California, Irvine, says the declining participation rate is driven by three main factors: A rapid expansion of tertiary education that began in the late 1990s which saw college enrollments rise seven-fold, the earlier withdrawal from the labor market for women, and a general reduction in participation for other age groups.
Labor market mobility has also substantially increased, which may result in temporary joblessness when people are in transition and that may not be picked up by censuses and surveys, Wang said.
“These quite noticeable changes should cause no concern, but can actually be celebrated,” said Wang. “I truly think it is the arrival of a new labor market, moving towards those in other market economies with middle to high incomes.”
And as more people seize the opportunity to capitalize on their retirement benefits instead of continuing to work, there may be a boost for consumption, said Cai Yong, an associate professor in sociology at the University of North Carolina, Chapel Hill.
“Not working is more of a luxury that many in China now can afford,” he said.