China’s Youth Unemployment
Problem
May 25, 2023NANCY QIAN
New
record-breaking figures for joblessness among workers aged 16 to 24 weaken the
Chinese economy's near- and long-term prospects. If the trend persists, as
seems likely, China will have an even harder time supporting its rapidly aging
population.
CHICAGO – This month, China released official statistics showing
that its unemployment rate for young people (16-24 years old) reached a record
high of 20.4% in April. Worse,
the news comes just one month before another 11.6 million students
will graduate from college and vocational schools and enter the job market.
True, the lockdowns under the government’s zero-COVID policy were much more draconian and
economically damaging than other countries’ containment policies, and they were
enforced for more than a year longer in most cases. So,
it is not surprising that China’s economic recovery has lagged others. For
comparison, the US youth unemployment rate hit
14.85% at its pandemic peak in 2020, before declining to 9.57% in 2021, and
to 6.5% today.
But while most of China’s pandemic-related obstacles to
employment have been lifted, the fundamental conditions for reducing China’s
youth unemployment are not improving. While the long-run post-pandemic jobless
rate will be lower than it is now, it is still likely to remain higher compared
to the pre-pandemic years. There are many reasons for this, but one key issue
is the large gap between the “reservation wage” rate that young graduates are
willing to accept and the rate that firms are willing to pay.
This mismatch reflects the extent to which the cost of living
has outpaced the growth in salaries. According to a 2021 survey, jobs for new
graduates in big cities like Shanghai and Beijing paid an average of only
CN¥5,290 ($749) per month. That is just enough to rent a 25-square-meter
(269 square feet) apartment (Chinese cities now have some of the world’s most
expensive real estate). And these young people can see that a job with such a
low starting salary is unlikely to provide the income progression needed to
support a family ten years down the line. Since urban white-collar workers are
typically expected to work from 9 a.m. to 9 p.m. six days per week, a
dual-career couple with a child must rely heavily on a nanny. Yet in Shanghai
and Beijing, nannies, who usually come from the countryside and often have not
graduated from high school, earn CN¥6,000 per month on
average – more than recent college graduates.
One might wonder why recent graduates do not just move to
smaller cities with lower costs of living. That is what many younger American
workers have done, relocating from the San Francisco Bay area or New York City
to the Sunbelt or the Rustbelt. But the analogous move for Chinese workers is
much costlier, because the amenities in smaller cities tend to be substantially
worse than in large cities (as is true of most middle-income countries). While
some parts of Chinese first-tier cities feel
more affluent than even New York or Tokyo, many third-tier cities still
struggle to provide reliable electricity and basic sanitation (like private
indoor toilets).
It is no wonder that most college graduates avoid moving to
these more “affordable” areas. Instead, they rely on their parents to help
cover basic costs. In 2014, a national survey found that around 30% of Chinese
college graduates continued to live with their parents. But parental support is
a double-edged sword when it comes to youth unemployment. While some young
workers cannot get by without their parents’ support, others are choosing not
to work precisely because their parents can afford to support them.
Young Chinese who were born in urban areas usually have parents
or grandparents who own apartments in the city center, owing to the mass
transfer of property rights from the state to residents during the 1990s housing reforms. And the one-child policy that
was in force between 1978 and 2016 means that these young people have no
siblings and thus stand to inherit prime real estate. If you are in this
situation and your parents can cover your living expenses, why bother to work for
a pittance?
China thus needs not only more jobs, but more high-paying jobs.
That is a tall order for any economy; but China will face additional headwinds.
For example, youth unemployment tends to cause other problems, such as increased crime and
social and political instability. Research also shows that youth unemployment
depresses lifetime earnings, because it means that young people are missing
important opportunities to develop skills. In the United Kingdom, one year of
unemployment at age 22 has been shown to depress wages by 13-21% 20 years later.
Prolonged, widespread youth unemployment can have profoundly
negative long-run macroeconomic consequences anywhere. But it is especially a
problem for China, now that it has one of the world’s largest and fastest-aging populations. The Chinese economy
urgently needs new cohorts of highly productive workers to help sustain a
rapidly growing elderly population. More than ever, Chinese policymakers need
to focus on economic growth.
