Human Capital in China

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Human Capital in China

• Zhigang Li

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Chinas Human Capital Investment(Heckman, 2005)

• Current HC investment is too low
• HC investment is highly beneficial in China
• HC investment is inequitable and inefficient

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Benefits of Human Capital Investment in China

• The rate of return to physical capital investment
  in China is as high as 20.
• In the US and many other countries the rate of
  return to HC is as high as 15 to 20.
• The rate of return to HC in China
• 4-7 in the 1990s by the wage approach
  (comparing wages of people with different
  education)
• 30-40 by the social return approach (compare
  the productivity of people with different
  education)

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Underinvestment and Inefficient Distribution of
HC Investment

• In 2002 the public expenditure in education is
  about 3.3 of GDP while 45 of GDP was invested
  in physical capital.
• The place of a persons birth is one of the most
  important determinants of that persons adult
  skill level (Knight and Song, 1999).
• Educational expenditure is tied to the wealth of
  a province.

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Efficient ways to foster HC growth

• Education subsidy
• Functioning markets for loans to HC
• Open labor markets
• Fewer restrictions on the mobility of workers
• Competition among schools and further
  school-industry ties
• Reliance on the private sector has great
  potential for increasing HC. On the other hand,
  private sector financing is very inequitable.

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Attainment in Basic Education in China (Tsui,
1997)

• Data Three sample surveys on children by NBS.
• Main findings
• Major expansions of the basic education system
  took place before and during the Cultural
  Revolution (except for the 1959-61 famine)
• Rural as well as urban basic literacy rates
  improved continuously over time.
• There is a long-term convergence in the
  rural-urban gap in the illiteracy rates.
• Within-provincial basic literacy rates changed
  little during 1981-1990. However, interprovicial
  disparity in basic literacy increased.

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Childrens Social Welfare in China, 1989-1997
(Adams and Hannum, 2005)

• Question How has the fundamental change in
  Chinas finance system (more localized and
  market-oriented approaches to social service
  provision) affected human-capital-related social
  services?
• Medical care
• Basic education
• Data China Health and Nutrition Survey (1989,
  1993, and 1997)
• Access to health insurance
• Enrolment and grade-for-age attainment

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Welfare Reform in China

• Health
• By 1975, insurance coverage reached about 90 of
  the population (almost all urban population and
  85 of the rural population).
• Some earlier studies suggest that overall
  insurance rate dropped from 26 in 1989 to 23 in
  1997.

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Empirical Findings

• Education
• Children in the top quartile (family resources)
  is 2.5 times more likely than those in the bottom
  quartile to be enrolled in school
• Children in high-income community were 2.2 times
  more likely than those in low-income community to
  be enrolled in school
• Contribution of community funds to local
  education is increasingly important.

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Effects of Education in Early-Stage Agriculture
(Young and Deng, 1999)

• Data Surveys of 200 farm families in Guanghan
  County, Sichuan province.
• Findings
• Technical efficiency in 1983 was higher for farms
  with three or more generations living together,
  suggesting that faring-specific education passed
  from generation to generation.
• Farm efficiency is not related to highest level
  of education (in a household).
• Some evidence that education did have some
  positive effects on farm efficiency in 1983, but
  not in 1983.
• Government-sponsored extension services had
  little effect on farm efficiency.

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Contribution of Human Capital to Chinas Economic
Growth (Wang and Yao, 2003)

• Use average years of schooling per capita for the
  population in the age group of 15-64.
• Rapid accumulation of human capital
• The rate of growth of human capital declined
  1978-1999
• The contribution of human capital to GDP growth
  was smaller in the reform period than in the
  pre-reform period. (???)

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Return to Education(Maurer-Fazio, 1999)
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Return to Education(Li, 2003)