Abstract: Education is the main way to improve human capital, and extending the years of compulsory education can deepen education development and enhance human capital. As the number of students in compulsory education decreases and the proportion of public education expenditure to GDP remains unchanged, the adequacy of educational resources will improve. The period from 2021 to 2035 is a window of opportunity for China's education to achieve its third leap forward, and it is necessary to improve human capital.
In general, the working-age population’s average length of schooling is influenced by the level of educational development and the growth rate of the working-age population.
During the reform and opening-up, China experienced two significant leaps in human capital accumulation: the expanded coverage of nine-year compulsory education since 1986 and the expansion of higher education enrollment since 1999. With significant increases in government public education spending, these two initiatives significantly increased the average educational level in both the total and the working-age populations.
For example, the number of junior high school graduates per 100,000 increased by 89.8% from 1982 to 2000, and the number of college and higher graduates per 100,000 increased by 3.3 times from 2000 to 2020. As expected from growth theory, this great leap in human capital has contributed significantly to China's high-speed economic growth.
However, the rate of human capital improvement has slowed as the stage of the demographic transition advances. According to UN data, the annual average growth rate of China's working-age population, aged 20 to 59 years, was 3.04% in the 1980s, 1.84% in the 1990s, 1.41% in the 2000s, and 0.10% in the 2010s. From 2016 to 2020, the annual growth rate is negative. Corresponding to the change in the population’s age structure, the new entrants to the workforce, represented by the sum of graduates at all levels (including those who did not continue their schooling or dropped out), also began to decline from 2014.
Meanwhile, the policy effects of the full coverage of nine-year compulsory education and expanded enrollment in colleges and universities are generally one-off. It’s not sustainable in the long run. As the policy effects gradually wane, the growth rate of average length of schooling also slows down accordingly. Under the effect of the above factors, both the increment of average years of schooling and the increment of new entrants to the workforce with higher human capital endowment are already decreasing. They can no longer support the growth of total human capital. (Figure 10-3).
As the pace of improvement in human capital slows down, China is entering a stage of high-quality development, rapidly shifting its growth pattern towards a productivity-driven one. The rapid shift of the growth model into a productivity-driven one requires improved human capital. As a key role in the transformation of the drivers of growth, education is not only an important manifestation of achieving the all-round development of people, which is the purpose of development, but also the main way to enhance the level of human capital.
For China, it is vital to recognize the importance and urgency of education development from the following perspectives with a solid empirical basis. First, econometric analysis of economic growth at home and abroad indicates that length of schooling is an eternal variable for economic growth. Second, improving human capital is a prerequisite for workers to adapt to the technological revolution and changes in industrial structure. Third, the progress of labor productivity ultimately depends on the improvement of workers' quality. Finally, the level of education development is the basic guarantee of national competitiveness.
From an international perspective, China’s average length of schooling is still relatively low. In 2019, the figure for the Chinese population aged 25 and above was 8.1 years, which is lower than the average level of countries with very high human and high human development and slightly lower than the world average. In the overall development level of China's economy and society, education development remains a relatively backward field. The ranking of China’s average length of schooling is significantly lower than the HDI (Human Development Index, compiled by the United Nations Development Programme, based on three core variables of life expectancy, education level, and quality of life, measuring the economic and social development level of UN member states). The more prominent shortcoming is that the educational attainment of older workers in the labor force is significantly low, hindering them from getting longer working lives and higher incomes.
Generally, education development is achieved through quantity and quality improvements. The focus on increasing the length of schooling is to extend the two ends of the compulsory education period based on the current nine-year one by including pre-school education and high school education in the mandatory education scope and ensuring it through government public expenditure. The core of improving education quality lies in creating a mechanism of orderly competition, balancing regulation and competition, and enhancing the vitality of education across society.
Only in this way can education fulfill the needs of the society. To this end, general education should value cognitive and learning abilities more, and the development mechanism of skills, including soft skills and upgrading skills, should be improved. Considering people's satisfaction as the fundamental requirement, the key to the top-level design of education development is a practical effect. That’s why it’s inappropriate to pre-determine the structure of education stages and types, let alone blindly take diversionary measures.
Speaking of policy, some researchers persist in suggesting an extension of compulsory education years, and a diametrically opposed question follows: Where does the money for extension come from?
Today, our deep understanding of educational development laws and China's advanced economic development enable us to answer this question well, logically or empirically. In other words, overall, a complete top-level design would free China's educational development from resource constraints.
Firstly, resources should be allocated according to economic and educational laws so that educational public funds can be used more efficiently. Human capital investments, just like investments in other fields, may also witness diminishing marginal returns. Therefore, a balanced allocation of resources is the best approach to more efficient fund usage.
Differences in the supply of educational resources still exist between one region and another, between urban and rural areas, and among all levels and types of education. This fact means that the allocation of limited funds is unreasonable. Its inefficiency can also be demonstrated by the goal of extending overall schooling.
Generally speaking, areas with higher social rates of return should be prioritized in the government’s expenditure of public funds. According to empirical conclusions of educational economics, social return rates of education follows this descending order: pre-school, elementary school, middle school, high school, higher education, vocational education, and skills training. It can be seen that twice the result can be achieved with half the effort even though resources are limited if the allocation of resources is optimized in line with the above order.
Secondly, the door of education should be opened wider, internally and externally, so that sources of funding and investment channels can be expanded through competition and by mobilizing resources from all walks of life. Education itself is diversified, and the public welfare it brings varies when the type or stage of education differs. In areas where the rate of private returns is relatively high, private education and cooperative education should be allowed and encouraged so that they can add positive impetus to the implementation of the overall education development strategy. In addition, education is an important area for charity and volunteer work. The government should create a favorable social environment and establish appropriate and effective incentives to enable the third distribution mechanism to play a greater role in education development.
Last but not least, Chinese population’s changing age structure and the potential for economic growth are expected to significantly reduce the burden rate of compulsory education and raise the level of assurance of funding for education. Due to demographic changes, from 2001 to 2021, the total number of primary and junior high school students has already decreased by 17.1%. In the future, with the population growing at a negative rate, the number of students receiving compulsory education is expected to decrease significantly further, and education resources will become much more adequate if the proportion of public education expenditure remains at 4% of GDP.
This conclusion can be confirmed by the changes in the following two indicators. On the demand side, the expanded compulsory education population, represented by those aged 4 to 18, divided by the expanded employed population, represented by those aged 19 to 64, is the compulsory education burden ratio. On the supply side, with the total GDP achieved at the potential growth rate as a benchmark, 4% of GDP represents the public expenditure on education that can be guaranteed.
As shown in Figure 10-4, from 2021 to 2035, as the burden of compulsory education decreases notably, public spending available for education will increase significantly. It is safe to say that this period is a window of opportunity for China's education to achieve its third leap forward. That is to say, it is a crucial opportunity to create a second demographic dividend.
This article was published on CF40’s WeChat account on May 7. It is translated by CF40 and has not been subject to the review of the author himself. The views expressed herein are the author’s own and do not represent those of CF40 or any other organizations.
