Youth is China’s economic future

In May this year, China reported that unemployment among 16-24 year olds hit a record 20.8 percent, with the high-paying, high-skilled jobs that university graduates are trained for becoming tighter.

Since mid-2021, hundreds of thousands of tech jobs have been shed due to the COVID-19 pandemic, tough capital and antitrust rules, and the broader “government crackdown on tech.” As the rapidly changing political environment adds to uncertainty, other high-skill sectors such as finance are facing cutbacks.

Last month, the Chinese internet was deluged with distressed photos and messages of recent graduates whose only job prospects were in low-wage sectors where job growth is still rife. Given the tremendous sacrifices they have made for higher education, Chinese students and their parents are finding it difficult to accept this new economic reality.

The Chinese education system is one of the most competitive in the world, not least because college admissions are determined by a single standardized national exam, the Gaokao. When most graduates from good universities enter the labor market, they have devoted many years of their youth to intensive study. The pressure to master the core curriculum—math, science, and literature—is so great that even elementary schools have cut back non-academic classes like physical education and music.

In the meantime, the families of these graduates have made sacrifices that are hard to imagine in many other countries. Children as young as 10 often complete four hours of homework a day and need constant encouragement, supervision and motivation from their parents. All of this is done with the expectation of being future-proof in a fast-growing economy – except that economic growth has slowed.

Young women tend to suffer more than young men in the labor market. Although Chinese girls outperform boys in all subjects and age groups, they have long been barred from entering traditionally male industries like civil aviation, which previously had explicitly misogynistic quotas. These hurdles reflect China’s strong tradition of favoring sons. Among 15- to 19-year-olds, there are 116 boys for every 100 girls; in the United States, there are 98 boys for every 100 girls.

In addition, women’s employment prospects continued to deteriorate after the government began pushing for increases in fertility in the mid-2010s. With the birthrate falling to an all-time low – setting the stage for massive economic problems in the future – the central government has abandoned its one-child policy and many provinces have increased maternity leave above the national minimum.

However, this has meant that employers have become more reluctant to hire women, and many have expressed concern about the costs of taking time off to give birth and raise children. The assumption is that a man would work as many hours as you need, no matter how many children he has, while a woman might not.

These cultural norms collide with the decline in high-skill jobs. When there are more jobs than workers, employers have no choice but to hire women and give them the support and benefits they need.

However, with 11 to 40 applicants for every vacancy, China has become a buyer’s market. The immediate consequence would be that young women would be forced to take lower-paying jobs than men with similar qualifications, and some could simply drop out of the workforce altogether.

Deteriorating job prospects for young women are just one of many signs that the Chinese economy is headed in the wrong direction. For decades, China’s growth has followed the pattern of advanced economies, with rising incomes and educational attainment, shrinking families and increasing female labor force participation. But now things are moving back toward lower incomes and educational attainment (as parents conclude higher education is unlikely to lead to well-paying jobs), larger families and lower female labor force participation.

The 10 percent slowdown in annual GDP growth was inevitable, but current trends raise serious concerns about China’s economic prospects, especially given that the government’s policies to address these issues have not worked. For example, to ease some of the pressure on schoolchildren and their parents, the government abruptly banned online tutoring in 2021 on the grounds that it would help level the playing field. However, the policy only resulted in a drastic reduction in the value and number of jobs in the technology sector (and in the parts of the financial sector that had invested in it).

Worse still, families have to pay even higher prices for in-person tutoring to keep their child from falling behind. And with more widespread elimination of high-paying jobs, an already highly competitive system would become even tougher, increasing the costs parents must bear to secure their children’s financial future. These increased costs would also hit girls harder than boys. Under the one-child policy, urban parents with daughters invested all their resources in their only child. However, since Chinese parents can now have two or more children, many would direct their limited resources to their sons rather than their daughters.

One way of tackling youth unemployment is certainly to encourage young graduates to return to rural areas and take up lower-paid manual jobs. For a middle-income country, however, where economic development is closely linked to urban growth, ruralization would be a step backwards. It would not raise wages, motivate future generations to higher education (which is needed to create better-paying, high-skilled jobs), or provide more equal opportunities for women.

To prevent its economic development from reversing, China must address the root of the problem: the lack of well-paying, high-skilled jobs. If the economy is to grow in the long term, or at least avoid a decline, the government must create the conditions for job creation in highly productive sectors and greater investment in higher education.

Nancy Qian is Professor of Business Administration and Decision Sciences at Northwestern University’s Kellogg School of Management, Co-Director of Northwestern University’s Global Poverty Research Lab, and Founding Director of the China Econ Lab.

Copyright: Project Syndicate

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