Human Capital in China Presented by Chantelle Blachut

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Human Capital in ChinaPresented by Chantelle
Blachut Emiko Nishii
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Outline.

• Measuring Human Capital (HK) in China
• What do these results really tell us?
• Why is HK underinvested in, in China? (policy
  issues)
• Can further HK investment help to reduce the
  income gap in China? (yes/No)
• Policy Implications.

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Human Capital in China (2010).

• Measuring human capital in China
• - how is this approach superior?
• Contains larger time periods (1985-2007)
• Constructs separate human capital measures by
  gender, location, and age
• Takes life-time earnings into consideration
• (the JF approach).

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Human Capital in China (2010) Methodology.

• Step 1 estimating earnings for all individuals
  in
• the population
• Uses the fitted parameters estimated by the
  annual Urban Household Survey (UHS) for 1986-1997
  to generate the parameters for urban for
  1985-2007.
• Uses the CHNS to compute the urban-rural ratio
  for 1985-2007
• Applies the above ratio to the imputed parameters
  for the urban population to find the parameters
  for rural.

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Human Capital in China (2010) Methodology.

• Step 2 estimating the lifetime expected earnings
  
• for all individuals in the population
• The life cycle is divided into 5 stages
• - retired, no school no work (Mgt60, Fgt55)
• - work, but no school (25ltMlt59, 25ltFlt54)
• - school work (16ltM/Flt24)
• - school but no work (6ltM/Flt15)
• - no school, no work (0ltM/Flt5)

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Human Capital in China (2010) Methodology
Contd.

• Step 3 To implement the JF method, the
• authors need to have data for
• annual population by age, sex and
• educational attainment (rural and
• urban).
• Problem data only exists for some years - for
  all others we need to build it (by using a
  perpetual inventory method) in order to
  categorise population by age, sex, educational
  attainment and location for any given year.

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Human Capital in China (2010) Methodology
Contd.

• Step 4 estimating lifetime earnings for all by
  
• taking into account the real income
  
• growth rate discount rate for
  
• Urban/Rural.
• Assumption MPLreal wage
• (i.e. GDP of secondary ind./ of laborurban
  prod. Growth)
• The discount rate4.58

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Human Capital in China (2010) Methodology
Contd.

• Total HK Stock, GDP and PK Stock
• Ratio of est. HK nom. GDP declined until 05-07.
• However total HK stock is gt total PK stock.
• HKPK appears to be continuously declining.
• Not clear if this indicates govt has overly
  weighted investment in PK.
• THK grown at 6.66 p.a. BUT GDP grew at 9.33.
• HK growth rate still much higher than other
  countries.

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Human Capital in China (2010) Methodology
Contd.

• Per capita HK
• This increase in total HK could be driven solely
  by population growth, or even demographic changes
  (eg. size of retirement group). Thus we also need
  to examine HK per capita ( total HK
  non-retired portion of population).
• Per capita HK Growth rates p.a.

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Human Capital in China (2010) Methodology
Contd.

• One more Step to devise Divisia Indices
• that look inside HK and determine
  
• what actually drives growth rates.
• The growth rate of aggregate HK stock is
  calculated as a weighted sum of the growth rates
  of the number of individuals across different
  educational, age, gender and location categories.
  
• Role of 2 determinants of the growth rate of HK
  p.a.

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Human Capital in China - what you need to
remember

• 1985 - 07 Total HK stock increased over 3 times
  (6.66 p.a.).
• The total HK in urban areas increased faster than
  in rural (8.73 vs 4.44) - thus, the gap
  continues to widen.
• ? Per capita HK increased rapidly and from 1995
  it has grown at the same rate as total HK (
  education not population alone).

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Human Capital in China - what you need to
remember

• The gender gap in total HK has been widening on
  the national level BUT diminishing in per capita
  terms.
• Education has a greater impact on HK accumulation
  than gender has.
• ? Did China under-invest in HK?

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Physical vs. Human Capital in China

• According to Heckman (2005), when compared with
  world standards, the of GDP devoted to HK is
  very low (e.g. in 2002, 3.3).
• Restriction on the flow of resources investing
  in education at different rates in different
  regions
• gtgt return on HK investment lt return on PK
  investment.

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Inequality in HK Hukou Policy

• Hukou policy charges children of interregional
  immigrants additional fees for schooling, that
  can amount to as much as 10 of total family
  income, just for the right to attend school.
• Schooling is mostly funded at the local level
  gtgtrich provinces produce more HK per capita than
  poor provinces.

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How can this be a problem in the future?

• Lucasian growth HK is used entirely to apply
  technologies imported from the tech. frontier in
  the productive process.
• As a country develops further (approaches the
  technological frontier), more and more HK must be
  used to innovate new technologies (Romerian
  growth RD).
• gtgt for the transition, large HK investment is
  needed
• gtgt existing inequality might be a big obstacle.

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Inequality in Literacy Rate.
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(No Transcript)
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Can Educational Expansion Improve Income
Inequality in China? Ning (2010).

• With the presence of the Hukou policy, can
  further HK investment in education reduce
  urban-rural inequality? - No!
• Data the China Health and Nutrition Survey
  (CHNS) data collected in 1997 and 2006.
• Aim By using a quantile regression, investigates
  the contribution of education to the convergence
  of regional income.

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Can Educational Expansion Improve Income
Inequality in China? Ning (2010).

• Nine provinces are chosen in the study
  (representative of a typical province).
• Only takes the individuals with college and
  university degrees as an example (huge gap in
  income the avg. annual income in 200521,030.54
  yuan. The max216,000 yuan, the min1200 yuan).

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Can Educational Expansion Improve Income
Inequality in China? Ning (2010).

• With the same level of education, income
  inequality is driven by what?
• where unit captures the type of work unit (e.g.
  govt., state service, state-owned enterprises,
  small collective enterprise1, otherwise 0),
  unitscale is size of work unit, hukou is
  household registration (1urban, 0rural).

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Can Educational Expansion Improve Income
Inequality in China? Ning (2010).

• Having a high degree is not sufficient to
  guarantee a high income. Only entering a monopoly
  sector, through a social network can ensure a
  high and stable income.
• Now, estimates a quantile regression model to
  analyze the returns to the education rate at
  different income distribution points.
• The dependent variableyearly income.
• Now years of education is included as an
  independent variable.

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Can Educational Expansion Improve Income
Inequality in China? Ning (2010).

• Results
• the return rates at 0.1, 0.25, 0.5, 0.75 and 0.9
  point are 7.22, 6.8, 6.74, 5.58, and 5.24.
• The return rate shows a tendency of decreasing
  with income.
• gtgt Further educational expansion helps little in
  narrowing the income gap with the presence of the
  Hukou policy.

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Can we lower regional inequality by investing in
Human Capital?

• YES!
• How?

Build a prosperous and cultured, new socialist
countryside (1997).
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Human Capital, Economic Growth Regional
Inequality in China, (Li, et. al, 2007).

• Aim to examine the impact of HK, infrastructural
  capital and foreign investment on economic growth
  in China.
• Data China Statistical Yearbook Census (1983,
  1993, 2001) Annual Population change Survey
  (State Statistical Bureau, 1996, 1998, 1999,
  2003, 2003).
• Section 5 Hypothetically examines the impact of
  one-time increases in HK (and infrastructure)
  investments on regional inequality.

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Human Capital, Economic Growth Regional
Inequality in China (contd).

• 1 Estimate national average rate of return p.a.
• of additional schooling to investment in
• higher education
• Internal rates of return to investment in
  education.

(regional calculations are arithmetic means of
the constituent provinces.
Interior almost 52 of total population).
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Human Capital, Economic Growth Regional
Inequality in China (contd).

• 2. Interior region (black line) has very low pc
  GDP
• relative to the coast and North-East
  (blue) (lt1/2).
• Real p.c. GDP ratios.

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Human Capital, Economic Growth Regional
Inequality in China (contd).

• 3.

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Human Capital, Economic Growth Regional
Inequality in China.

• In sum Investing in HK and higher education in
  China, generates comparable, or higher returns,
  in the less developed areas relative to the more
  developed coastal region.
• Therefore - a policy such as this, aimed at
  fostering growth in regional educational
  attainment levels, should be effective in
  achieving the goals of economic efficiency and
  humanitarian equality.

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Policy Implication.

• In understanding the importance of HK for
  growth, reducing regional inequality to give the
  right incentives to acquire skills, what should
  happen first?
• further educational expansion
• abolish Hukou policy opening the labour market

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Bibliography

• Heckman JJ (2005), Chinas Human Capital
  Investment, China Economic Review, 16, pp. 50 -
  70.
• Li H, Liang, Y, Fraumeni, BM, Liu Z, Wang X
  (2010), Human Capital in China, 31st Conference
  of the International Ass. for Research in Income
  and Wealth, St Gallen, Switzerland, August 26.
• Li H, Fleisher, B, Qiang Zhao, M (2007) Human
  Capital, Economic Growth, and Regional Inequality
  in China, William Davidson Institute Working
  Paper, No. 857, Jan.
• Heckman, J (2003) Chinas Investment in Human
  Capital.
• Ning, G (2010) Can Educational Expansion Improve
  Income Inequality in China? Evidences from the
  CHNS 1997 and 2006 Data.

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Another interesting literature

• If you are interested in reading a paper
  assessing the HK investment in China for the past
  decades (if China underinvested in HK? Or China
  actually is moving to the right direction in
  terms of HK investment), the following meta-study
  might be helpful.
• Liu, E (2005).A META-ANALYSIS OF THE ESTIMATES
  OF RETURNS TO SCHOOLING IN CHINA. University of
  Houston.