The growth rate of the working population has begun to fall rapidly.

Barriers to the labor force transition should be removed by changing the economic growth mode.

Most people believe the last thing China is lacking is labor. However, while extensive human resources remain untapped, many working-age employees are being laid-off and a large number of college graduates are having difficulty finding jobs. Some demographers claim that China's demographic dividend will soon be exhausted. So, what is the real situation of the Chinese population? People's Daily interviewed Cai Fang, director of the Institute of Population and Labor Economics under the Chinese Academy of Social Sciences to find out.

Demographic structure affects economic growth

Reporter: What is this Demographic dividend? What does it do for economic growth?

Cai: A demographic dividend is a rise in the rate of economic growth as a result of a growing percentage of working age people in the wider population. When this phenomenon occurs, output per capita rises. Currently, China's demographic dividend contributes 26.8 percent of its GDP growth. Between 1978 and 1998, material capital contributed 28 percent of the country's economic growth; labor (excluding human capital) contributed 24 percent; tertiary educated human capital contributed 24 percent; and workforce transition contributed 21 percent.

The size of the workforce undoubtedly relates to the total scale of the population. Therefore, the impact of population transition on economic growth doesn't reflect population growth and overall population size, but population structure. With a sound demographic structure, there is sufficient employment for all. Using the total dependency ratio as an index for research, the fall in China'stotal dependency ratio contributed 26.8 percent to per capita GDP growth between 1983 and 2000. When the ratio grew a percentage point China'sper capita GDP grew 0.116 percentage points; when it fell a percentage point, per capita GDP decreased by 0.116 percentage points.

Similar findings have been made overseas. In the East Asia Miracle and New Continent Country Miracle -- as the phenomenon was dubbed by noted American think-tank the Rand Corporation -- which occurred between 1970 and 1995, a significant working-age population was responsible for between one third and one half of the exceptionally high growth rates of East Asian countries. When the New Continent of North America was first developed, the highly productive population structure contributed 90 percent or even 100 percent to the higher part of per capita GDP growth there over that of the Old Continent.

East Asia'sfavorable population structure enabled it to record continuous economic growth despite not making any noticeable technological progress. Without this advantage, the economies of some places, like the Soviet Union, began to slow down.

China's demographic structural advantage fading

Reporter: Some experts believe China has the largest and fastest-growing working-age population, and that this growth will continue into the 2030s. What is your opinion of the current situation?

Cai: Judging from current population curves, China'spopulation will peak at 1.406 billion in 2030; the working population will hit 923 million around 2020. The growth rate of the working-age population has begun to slide rapidly, a trend that is expected to continue until 2013.

Meanwhile, research shows that the average growth rate of China'sworking population is not as high as people tend to think. It is expected to stand at 0.4 percent in the next few years against an average growth rate of 1.1 percent in developing countries.

In addition, the proportion of children in the overall population structure will continue to fall, and the proportion of elderly will rise. By the end of the decade, the trend towards capital accumulation as a result of high productivity and savings rates will have disappeared. By 2050, China'sdemographic structure will appear to be nearing an inverted reversed pyramid, and Chinese society will resemble a more typical society which grows old before it gets rich.

Use existing advantages to solve future problems

Reporter: Foreign scholars have proposed two solutions: changing the family planning policy to raise the fertility rate from 1.8 percent to 2.2 percent; and increasing the participation of the elderly in the economy. In the current conditions, what do you think is the best way to ensure that China'spopulation structure is maximized to contribute to the economy as long as possible?

Cai: Demographers refer to the change in labor supply from unlimited to scarce as the Lewisian Turning Point. It is sure to occur in China during the 11th Five-year Plan period (2006-2010). The years between 2004 and 2009 will be a period of balanced demand and supply of agricultural workers. After this period both supply and demand will fall. This would mean that the shortage of workers in urban areas, which has become an increasingly serious problem in recent years, would no longer be cyclic and policy-driven, but a general trend proved by changes in the labor market. Since 2002, China'sreal unemployment rate has been falling, while the labor participation rate has been rising since 2004.

Will the Lewisian Turning Point be a blessing or a curse? This depends entirely on whether we foresee, understand and address it properly.

When we have a growth mode that meets national conditions-- ample supply of cheap labor and capital -- we should do everything possible to ensure employment is maximized. The experiences of East Asian countries have shown that labor-driven economic growth can be shifted to technology-driven economic growth in the long term.

Simply put, as the growth mode changes and new growth points are created, China must make full use of the short-term buffer period, a result of the unlimited labor supply, to maximize employment and the benefits of the demographic dividend. It must also use this time to develop education and training and accelerate the labor force transition, including removing barriers to the transition so as to maintain the resources of labor growth.

By People's Daily Online