A new study on the distribution and development of human capital in China shows a rise in the average years of education in the country’s labor force between 1985 and 2021. The study also indicates a decline in the financial benefits of education, with diminishing returns for each extra year of schooling. 

Drawing on data from the National Bureau of Statistics, various universities, and social survey departments, this annual report, compiled by the Central University of Finance and Economics and now in its 15th year, has become a key indicator of China’s labor market trends.

The report indicates that from 1985 to 2021, the average years of education for the urban labor force increased from 8.23 to 11.69, while in rural China, it increased from 5.47 to 9.24. 

At the same time, gender disparities in the average years of education for the labor force are gradually diminishing. As of 2020, urban males had an average of 11.53 years of education, while females had 11.61. In rural areas, males had 9.30 years, and females had 9.06.

Despite the improvement, the financial returns for each extra year of education, particularly for women in urban areas, have declined. For instance, in 2008, urban males could expect an 8.3% increase in income for every year of additional education. However, by 2020, this dropped to 5.7%. Similarly, urban females saw their education return rate decrease from 10% to 6% during the same period.

Professor Li Haizheng, who led the study, told financial outlet Yicai that diminishing returns on education is normal as the overall level of education rises. He stated that these returns are influenced by the quality of education and shifts in the labor market’s supply and demand. 

“For example, when the majority have only primary education, the returns on secondary education are high. However, this changes as more people attain secondary education,” said Li.

The report also highlights that between 1985 and 2021, China’s total human capital continued to expand, albeit at a slower pace. During this period, actual incomes in rural and urban areas witnessed average annual growth rates of 6% and 8.5%, respectively.

From 2010 to 2021, the average annual growth rate of urban human capital slowed from 15% to 9% compared to the preceding decade. Similarly, in rural areas, it decreased from 8% to 4%.

According to Li, the slowing growth rate of human capital is influenced by several factors. The first is changes in the population structure, including aging and a decrease in the proportion of young people, which can affect the total human capital.

“The deceleration in technological advancement is another factor impacting the value of human capital, and last, economic development and corresponding shifts in the labor market structure are contributing to the slowdown in income growth. This may lead to a reduction in income disparities among workers of different skill levels,” he said. 

Editor: Apurva. 

(Header image: Workers at a labor market in Huai’an, Jiangsu province, May 13, 2021. VCG)