China's human capital investment lower than the world average: Nobel Prize winner

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Last updated at: (Beijing Time) Wednesday, December 10, 2003

China's human capital investment lower than the world average: Nobel Prize winner

China's investment on human capital is lower than the world average, according James Heckman, winner of Nobel Prize for Economics in a speech at Peking University on December 5.

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The rate of return of China's education is as high as 30-40 percent, yet wage policies and many other regulations on salary lead to unduly low individual income return, therefore individuals have no enough motivation to invest on education. China's investment on human capital is lower than the world average, according James Heckman, winner of Nobel Prize for Economics in a speech at Peking University on December 5.

According to Heckman, the investment from governments at various levels in China takes up 2.05 percent of the GDP (Gross Domestic Product) while that on the material capitals 30 percent. These two figures in the United States are respectively 5.4 and 17 percent. This phenomenon is caused by rate of return of the material capitals higher than that of labor capital. However, the fact is that China's present wage policies lead to the serious imbalance and distorted situation as mentioned above.

Individuals can not receive directly all the benefits brought about by education. For instance, under the current policies, technical workers have relatively low wages, but the aggregate return brought about by these workforces with high skill to the society is considerable. Heckman analyzed that China's labor market, which is seriously distorted, can not truly represent the marginal contribution made by educated labors to the economy. If wage policies can not pay workers according to labor productivity, it will entail an extremely serious outcome.

China's current policies lead to another inequality, that is the birthplace affects to a great extent the chance for an individual to acquire skills. The tuition policy currently running in middle schools is just a discrimination against the poor in rural areas.

Heckman suggested that China should open its labor market, eliminate the wage gap between different regions, open the labor-capital market, provide human capital investment with funds, expand the government's budget on education and balance the government's expenditure on different regions.

This is an article from China Economic Times,written by Zou Mingtao; translated by PD Online staff member Gao Lanrong.

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