L-type is not a year or two, China will usher in the peak of labor shortage

I tell you that there may be a peak of the next labor shortage. The population of economic activity has peaked since 2017 and has also experienced negative growth since then. The trend of labor shortage is irreversible. Today, I use this machine to talk about economic growth. If we can correctly judge the situation, follow the logic of economic development and enter the new normal, and lead it. With the correct promotion method, we are expected to realize two "L" types. Tracks, one is recent, and the other is slightly longer.
First of all, we all know that we don't want to be a "V", or we can't expect the "V" shape to recover, because what we are experiencing now is not the past that can bring us a "V" shape recovery. The problem on the demand side is the problem on the supply side. The disappearance of the demographic dividend is irreversible. If it is the main driving force of our past economic growth, it is impossible to use this kinetic energy to return to the original growth rate.
We already know that the working-age population aged 15 to 59 in China has begun to decline. The negative growth started in 2011, the peak in 2010, and began to decline in 2011. I tell you that there may be a peak of the next labor shortage, because according to the age structure of the population at that time, during this period of time, that is, after the working-age population began to decrease in 2011, the labor participation rate will increase, according to the population. The age structure predicts that the labor participation rate will also increase. The labor age population multiplied by the labor participation rate is equal to the economically active population, which is equal to the real labor force. So my prediction at the time was that the economically active population peaked in 2017 and has since grown negatively. I just want to tell you that the trend of labor shortage is irreversible.
But I got a new message. Recently, our colleagues in our population office, whether from our own survey data in six cities or from the survey data of the Bureau of Statistics, have found that the labor participation rate has actually declined in the past years. Although the decline is not much, at least it has not improved. Assuming that the labor participation rate is unchanged, the working-age population will decrease and the economically active population will decrease. Only if the labor participation rate is raised, will the peak of the economically active population come later. But now the labor participation rate has dropped slightly, which means that the decline in our real workforce is much more serious than what I have shown on this line.
This population trend is not only through the supply of labor to affect our economic growth, but also through the shortage of labor supply, wages rise, the rise is too fast faster than the growth rate of labor productivity, so the unit labor cost is equal to the wage divided by the labor productivity, the rate of wage increase Faster than labor productivity, unit labor costs will increase, and acceleration will be closer to developed countries. The competitive advantage of our manufacturing industry will decline.
The quality of our workforce, human capital is improved by the new growth of the workforce, the continuous fresh blood, they are highly educated, if the growth rate of this part of the population is significantly slowed down, the characteristics of the low human capital of the stock are slow to improve. . Therefore, we predict that the increase in human capital will also decline. The rate of return on capital has also declined accordingly. This is what we know. The basic premise of the theory of new economic growth and the theory of new valley growth is that when the labor force is fixed, not infinitely supplied, there will be a diminishing return on capital.
Moreover, the re-allocation of resources, the shift of labor from low-productivity sectors to high-productivity sectors, and improved resource allocation, thereby increasing the trend of total factor productivity, have also slowed down.
As a result, the growth rate of the corresponding rural migrant workers has slowed down significantly, and only increased by 0.4% last year. These factors are factors that reduce the potential growth rate from the supply side. This is predicted in the past. Before 2010, our potential growth rate was about 10%. The average growth rate of the “Twelfth Five-Year Plan” period was 7.6%. If there is no reform, if there is no reform, no potential stimulus will occur. The rate is 6.2%. The potential growth rate is caused by an irreversible trend, so we cannot assume that there is a “V” shape.
We can calculate, we know the potential growth rate, we also know the actual growth rate, use the actual growth rate to reduce the potential growth rate, if it is positive, we prove that we are achieving economic growth above the ability, if it is negative, then Explain that we have not fully utilized our potential. In history, this is 0. If the potential growth rate is not fully utilized, it is the growth gap. Finally, it will be expressed as a “V” shape. From the demand side, the macroeconomic stimulus can return to making full use of your production factors. Therefore, the problems on the demand side in our history have been solved, and all have returned, showing the "V" shape.
If we still think that the potential growth rate is 10%, now that the growth rate and potential growth rate are reduced, we will get the pink line, and we also have a growth gap, so we also feel that we can return to the original level. But in fact, as I said before, the result of our calculations, the potential growth rate has now dropped to 6.2%, which is the "13th Five-Year" average. If we look at the potential growth rate we have actually measured, we do not have this gap, so the actual growth and potential growth capacity of the two are in line. There is no gap and we cannot expect to return. If you still form a "V" shape, it means that you have surpassed your growth ability, which may be an overheated economy.
We don't want the "V" shape, we want to "L" type. In the near-term, there is an “L”-shaped trajectory. What should be the lower limit and upper limit of our economic growth during the 13th Five-Year Plan period? The lower limit is definitely calculated according to the "13th Five-Year Plan" period. If nothing happens, it is a normal trend. We average 6.2%. Of course, it is different every year. It is gradually going down, but it is not so steep. What is the upper limit? Coupled with some possible reform dividends, the decline in our population fertility rate is not so fast, we will have some modest measures to help enterprises, and even our household registration system reform can bring some labor supply, these are weak, It is not a big effect, but it can reach an average of 6.7% during the 13th Five-Year Plan period. Our economic growth rate is feasible during this period.
This year achieved 6.7%. We envisage that if our reform dividend is gradually revealed from next year, if it is not too high, it will remain at 6.5% in the next four years, and the final result will gradually move closer to the ceiling. If this is the case, this line is close to a recent "L" type trajectory compared to the two upper and lower limits. In the near term, the "L"-type trajectory must also rely on reform dividends, and must rely on reform.
Why do we have to set upper and lower limits? To put it simply, setting a lower limit is necessary. If you break through the bottom line and break through the potential growth rate, it means cyclical unemployment. We don’t have periodic unemployment, but we don’t want to break through the bottom line. A basic need. But beyond the upper limit, it means that you must use stimulating methods, which will lead to increased liquidity that cannot enter the real economy, and finally to industries that are not related to your competitiveness, leading to economic bubbles. Of course, we don't want to see it. The most important thing we should worry about now is not the growth rate, but the economic risk. We don't want to have this risk, so we have to have a lower limit and an upper limit. If possible, we will strive for an "L" type trajectory.
What is the long-term "L" type trajectory? There are many areas of structural reform on the supply side. I have a few simple items. In fact, many reforms have such an effect.
First, the reform of the household registration system, two very obvious supply side effects, can increase the participation rate of the non-agricultural industry, transfer from agriculture, or he may want to go back after the age of 40, but the reform of the household registration system left him So, our labor participation rate has increased and the supply of labor has increased.
Clearing the institutional barriers, the labor force will continue to move from the low-productivity sector to the high-productivity sector. I call this the Kuznets process, which is the productivity of the labor force, otherwise the new growth of the labor force in the city has come. The less, if the household registration system is not reformed, those who go back to a certain age will go more than the people who come in every year. When he goes back, the migrant workers return home and do not work or leave the labor market, but his employment is The sector with lower productivity is employed, so the process becomes an inverse Kuznets process that will have a new negative impact on our economic growth. The household registration system reform also has the demand side effect, which is to expand a consumer group.
The second is “three to one, one reduction and one supplement”, which can improve the total factor productivity, allocate resources more efficiently, and increase the rate of return of capital, all of which can improve the potential growth capacity. Of course, our education, training, enhancement of human capital, and adjustment of birth policies can increase the supply of labor in the future. At the same time, these will bring the accompanying demand side reform effect, but more importantly, directly effective, the reform dividend is on the supply side. This is our measure of reform.
According to the above-mentioned aspects, increasing labor participation rate, increasing human capital, increasing total factor productivity, improving future labor supply and human capital through fertility adjustment, etc., can be combined into different reform scenarios. Therefore, we predict that by 2050, this will be less reformed, the reform will not be strong, and it will be carried out according to the past trend; there will be certain reforms; the reform will be more extensive; the third situation is that the reform is the most powerful, and we It is expected that the adjustment of the birth policy will have an effect, and the future total fertility rate will be close to 1.8.
In short, your potential productivity is going to decline. From middle income to high income, the inevitable growth rate is going to decline, because you need more and more independent innovation to improve total factor productivity. However, different reforms will bring about different trajectories. On scenario 3, this picture is closest to a long-term large “L” type growth trajectory. This growth trajectory that can become an "L" type is the increase in the potential growth rate brought about by our reforms, that is, the reform dividend. If you really see the change track of the "V" shape, I think it should be a stimulating result. It is better to say that we should be more vigilant about the fact that we expect it to return to the economic growth rate. The economic risks coming.
According to the situation of scenario 3 I just measured, we estimate when China will enter the “middle income trap” in the future. This is completely in accordance with the third situation, which may not really happen, but it is the best situation. . According to that forecast, the per capita GDP in 2014 was $7,400, currently about $8,000. By 2022 we can reach $12,600, which is the middle-income to high-income threshold. This step has already entered, but it is not so safe and not so safe to step in, because some Latin American countries in history, such as Argentina, have entered too high. Retired to the ranks of the country, but then he returned, and did not go back today.
We will continue to develop, and by 2030 we can reach $19,000, which is equivalent to the current status of Estonia. It will reach $32,000 by 2040, which is close to the current average of $37,000 in high-income countries. By 2050 it is $52,000, which is equivalent to the current status of Canada. But all of us can also say that it is to boost confidence, but it is assumed that in this best reform situation, and you have achieved this step of reform, and this reform has brought corresponding results. Because we can relax the birth policy, but you can't decide whether the fertility rate can be raised to 1.8 after the birth policy is released. But is there any effort? Yes, it is not enough that you only let go of the birth policy. There is also a series of policies that will help people raise the cost of raising children so that people can give birth to those children who should give birth according to the policy. This is just a reference.
(Cai Wei's speech at the 2016 Financial and Economic Strategy Annual Meeting)
(The author of this article: Director of the Institute of Population and Labor Economics of the Chinese Academy of Social Sciences, Director of the Human Resources Research Center, Doctoral Supervisor. Representative of the 17th National Congress of the Communist Party of China; Representative of the 11th National People's Congress, Member of the Standing Committee of the National People's Congress, Agriculture and Rural Areas Committee member.)

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