20 June 2019
China plans to extend the retirement age amid concerns about a shrinking workforce. Photo: Bloomberg
China plans to extend the retirement age amid concerns about a shrinking workforce. Photo: Bloomberg

POLICY WATCH: Rethinking the retirement age

Abundant supply of cheap labor has been instrumental in China’s rapid ascent on the global economic stage in the past couple of decades. But now the nation is finding that the advantage is being eroded slowly as wages and other costs rise in the country, threatening to bring the ‘factory of the world’ story to a close. 

Adding to the challenges, authorities are worried that an aging population will deplete the workforce significantly in the coming years and have an enormous adverse impact on the economic and social fabric of the country. Given this situation, there are growing calls for far-reaching policy action to shore up the labor pool. A key focus area, not surprisingly, is extending the retirement age of workers.

Extending the retirement age will be a more effective tool in easing the labor shortages and driving economic growth than the easing of the one-child policy that was announced last month by Chinese authorities, observers say. More than three decades of strict population control have reduced the number of available workers, putting a question mark over the nation’s future economic prospects.

The working-age population in China has declined by 3.45 million last year, according to the government.

A higher retirement age would not change China’s demographic structure or trends, but instead it will help boost the nation’s labor supply, and therefore be good for economic growth in the long run, Yu Yongding, a senior researcher at the Chinese Academy of Social Sciences, has said.

China’s compulsory retirement age now is 50 for most women and 60 for men. Observers expect the retirement age will be pushed 5 years higher than current level by 2020.

Asia’s largest economy has been struggling to boost its labor supply after the birth control policy of the past decades. A shrinking workforce has emerged as one of the obstacles for the nation to maintain its growth momentum. Compounding the problem, several youngsters who study abroad prefer to stay overseas for work rather than return home.

The government aims to keep the employment market stable to facilitate the nation’s economic transformation, with plans designed to create more jobs for new graduates as well as extending the retirement age of existing workers to avoid a shrinking of the labor pool.

Authorities plan to keep the urban unemployment rate below 4.6 percent next year and create 10 million new jobs, Yin Weimin {尹蔚民}, the minister of human resources and social security, said at a work meeting on Dec. 26.

The urban jobless rate this year is expected to be around 4.1 percent, compared with the 4.04 percent level recorded at the end of the third quarter.

While the official unemployment rate compares favorably with the levels in developed nations, analysts warn that the actual unemployment rate in China could be worse than the headline figure given the fact that about 260 million migrant workers are not included in the calculation.

The proposal to extend the retirement age comes as China is facing a tough challenge to sustain its economic growth amid an uncertain global environment. Weak external demand has affected export-oriented enterprises which have traditionally absorbed many workers. Premier Li Keqiang said the economy need to expand by 7.2 percent per annum to create 10 million new jobs and bring down the urban unemployment rate.

– Contact the reporter at [email protected]


EJ Insight writer

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