It is true that the lockdowns under the government’s zero COVID-19 policy were far more draconian and economically damaging than other countries’ containment policies and were imposed for more than a year more in most cases. So it’s no surprise that China’s economic recovery has lagged behind others. By comparison, the U.S youth unemployment rate reached 14.85 percent at the peak of the pandemic in 2020, before falling to 9.57 percent in 2021 and 6.5 percent today.
But while most of China’s pandemic-related barriers to employment have been lifted, the fundamental conditions for reducing youth unemployment in China are not improving. Although the long-term post-pandemic unemployment rate will be lower than it is now, it is likely to remain higher compared to pre-pandemic years. There are many reasons for this, but a key issue is the large gap between the “book take” rate that new graduates are willing to accept and the rate that businesses are willing to pay.
This mismatch reflects the extent to which the cost of living has outpaced wage growth. According to a 2021 overview, jobs for new graduates in major cities such as Shanghai and Beijing paid an average of only CNÂ¥5,290 ($749) per month. That’s enough to rent a 25 square meter (269 sq ft) apartment (Chinese cities now have some of the most expensive real estate in the world); 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 later. Since urban workers are typically expected to work from 9am to 9pm six days a week, a dual-career couple with one child must rely heavily on a nanny. However, in Shanghai and Beijing, nannies, who are usually from the countryside and often have not graduated from high school, earn 6,000 CNÂ¥ per month on average—more than recent college graduates.
One might wonder why recent graduates don’t just move to smaller cities with a lower cost of living. That’s what many younger American workers have done, moving from the San Francisco Bay Area or New York City to the Sunbelt or Rustbelt. But the commensurate move for Chinese workers is much more costly, because amenities in smaller cities tend to be significantly worse than in big cities (as is the case for 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 (such as private indoor toilets).
No wonder most university graduates avoid moving to these more “affordable” areas. Instead, they rely on their parents to help cover basic expenses. In 2014, a national survey found that about 30 percent 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 choose not to work precisely because their parents can afford to support them.
Young Chinese born in urban areas usually have parents or grandparents who own apartments in the city center due to the massive transfer of property rights from the state to residents in the 1990s housing reforms. And the one-child policy in place between 1978 and 2016 means these young people have no siblings and will therefore inherit prime real estate. If you are in this situation and your parents can cover your living expenses, why bother working for a small amount?
Therefore, China needs not only more jobs, but also more high-cost jobs. That’s 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 reduces lifetime earnings because it means young people miss out on important opportunities to develop skills. In the UK, a year of unemployment at age 22 has been shown to reduce wages 13–21 percent 20 years later.
Prolonged, widespread youth unemployment can have profoundly negative long-term macroeconomic consequences anywhere. But it’s especially a problem for China, now that it has one of the world’s largest and faster aging populations. The Chinese economy urgently needs new pools of highly productive workers to help sustain a rapidly growing aging population. More than ever, Chinese policymakers need to focus on economic growth.
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This article originally appeared on Project Syndicate.
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