Youth Employment and the Pandemic Recovery in the People’s Republic of China

The coronavirus disease pandemic worsened unemployment in the People’s Republic of China, particularly for young people, with one-fifth of the country’s youth population unemployed in 2022. This policy note provides suggestions to help increase youth employment in the People’s Republic of China following the pandemic, including retooling the education system to meet demand for skills in the “new economy,” expanding the labor capacity of the services sector, and developing labor markets in rural areas.


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Youth Employment and the Pandemic Recovery in the People's Republic of China

Summary 概要
• In the People's Republic of China (PRC), about one-fifth of the youth population was unemployed in 2022, rising through the coronavirus disease (COVID-19) pandemic.While unemployment rates increased disproportionately in several economies, the youth-to-adult unemployment ratio indicates more challenges for youth workers in the PRC.More broadly, youth unemployment is correlated with adult unemployment rates and worsened by the COVID-19 crisis.Also, country-specific factors contributed to differences in youth unemployment rates during the pandemic.

新型冠状病毒感染(新冠)疫情期间，中华人民共和国(中国)青年失业率上升势头加快，2022年 达到20%左右。尽管有几个经济体的失业率均增长过快，但青年失业率与成人失业率的比值显示 中国青年劳动者所面临的挑战更多。更广泛地讲，青年失业率与成人失业率相关，新冠疫情危机 更是令青年失业雪上加霜。此外，疫情期间，国别特定因素也造成青年失业率各不相同。
• The high level of youth unemployment in the PRC raises several policy observations.First, more understanding is needed concerning the structural and cyclical factors.Second, the extent to which education has adapted to youth employment needs reassessment.Third, the location preference of youth workers, wages, and alignment with labor market conditions require further policy consideration.

针对中国较高的青年失业水平，提出如下几点政策观察。首先，需要深入了解相关的结构性和周 期性因素。其次，需要重新评估教育与青年就业的适应程度。第三，政策需要进一步考虑青年劳 动者的地域偏好、薪资水平及与劳动力市场状况的一致性。
• This policy note provides several suggestions to address youth employment in the PRC.Youth workers will benefit from having the skills demanded by the new economy.The services sector should expand its capacity to absorb youth workers as the economy recovers post-pandemic.Enhanced labor mobility, job creation, and improved working conditions in provincial areas with high unemployment but lower cost of living can help encourage youth workers to stay and thrive in rural areas.
Because the youth labor force is central to a country's human capital, youth unemployment is a pressing concern for policymakers.While the causes of high unemployment differ across countries, they tend to result from common factors such as job availability and employment instability.Given that labor market recovery after the pandemic is a policy priority, this policy brief seeks to clarify and inform policy discussions by reviewing the latest information and patterns of youth unemployment globally, specifically for the People's Republic of China (PRC).
2. Recent data suggest that youth employment has worsened since the onset of the pandemic.The youth labor force also appears to face more challenges in the labor market than the adult labor force, and its unemployment rate is highly responsive to the adult unemployment rate.More importantly, the dynamics of youth unemployment are composed of multiple dimensions and drivers that differ from adult unemployment and vary with country characteristics.
3. The high level of youth unemployment in the PRC raises several questions that could help understand labor markets in the post-pandemic period.A natural starting point would be having a better knowledge of structural and cyclical drivers of youth employment.It is also essential to have a clearer view of the long-term role of education in youth employment.A tighter grasp on the role of labor market conditions in youth employment and wages is also key for policy assessment.4. Against this background, this policy note provides suggestions to help address the challenges facing the youth labor force in the PRC.First, youth workers will benefit from having the right skills required by the new economy, including the information and communication technology, and knowledge base for transition to the low-carbon economy, which will continue to grow in the PRC.Second, the services sector should have a larger capacity to absorb youth workers as the PRC economy gradually recovers from the pandemic.Third, job creation in provincial areas with high unemployment but with lower cost-of-living can help attract youth workers to stay in rural areas.Though the list of suggestions is by no means exhaustive, it will hopefully stimulate and contribute to further discussion.

II. YOUTH LABOR MARKET DURING THE PANDEMIC
5. In the PRC, about one-fifth of the youth population was unemployed in 2022.The pandemic has worsened youth unemployment in many economies.The share of youth not employed, and not taking education or training, was 23.3% in 2020, an increase of 1.5 percentage points from 2019, and the highest level in 15 years, according to the International Labour Organization. 1 In the PRC, the youth unemployment rate was 11.4% before the COVID-19 pandemic (the average for 2018 1 International Labour Organizaiton.Global Employment Trends for Youth 2022.https://www.ilo.org/wcmsp5/groups/public/---dgreports/---dcomm/---publ/documents/publication/wcms_853321.pdf. Youth Employment and the Pandemic Recovery in the People's Republic of China 中华人民共和国青年就业与疫后复苏 and 2019).The adult unemployment rate was about 4.5% over the same period.The onset of the pandemic saw the youth unemployment rate rise above 15% and reach 19.3% by June 2022, while the adult unemployment rate increased above 5% but came down to 4.5% by June 2022.The acceleration of youth unemployment relative to the adult unemployment raises fundamental questions about labor market conditions and its outlook.Higher structural unemployment might have been worsened by skill mismatches in sectors severely disrupted by lockdowns.The outlook for young works will become dimmer unless these businesses recover quickly and have sufficient funding to actively match and upskill their workers in the aftermath of the pandemic.
6. Youth unemployment rates increase disproportionately in several economies.During 2018 and 2019, youth unemployment rates were already high in the PRC (11.4%), as well as in the Organisation for Economic Co-operation and Development (OECD) countries (11.8%).Among the large OECD economies, youth unemployment was high in Australia (11.8%), the Republic of Korea (10.5%), and the United States (US) (8.5%), except for Japan (3.7%).During 2020-2022, the average youth unemployment rate rose to 14.8% in the PRC and 13.4% in OECD countries.Between 2018-2019 and 2020-2022, the largest increase in youth unemployment rate among these economies was recorded in the PRC (3.4 percentage points), followed by the US (3.1 percentage points), compared with an OECD average of 1.6 percentage points.
7. The youth-to-adult unemployment ratio shows greater challenges for the youth.The youth-to-adult unemployment rate in PRC was 2.5 in 2018-2019 and increased to 3.1 during 2020-2022.Over the same period, the ratio also increased in other economies, but to a lesser extent.For instance, the ratio increased from 1.6 to 1.7 in Japan, while it dropped from 3.0 to 2.9 in Australia, 3.1 to 2.8 in the Republic of Korea, and 2.8 to 2.3 in the US; the OECD average dipped from 2.6 to 2.5.These show that relative to the adult unemployment rate, the youth unemployment rate in PRC is high, compared with other large economies.
8. The youth unemployment rate is responsive to adult unemployment rate and relatively worsened by the pandemic.An analysis was conducted on the correlation between youth and adult unemployment rates during 2018-2022 using a sample of PRC and OECD countries.The estimations regress the monthly youth unemployment rate on the adult unemployment rate, including a set of country-fixed effects and an indicator marking the pandemic period (January 2020 onward).The estimates suggest a strong correlation between youth unemployment and adult unemployment, as well as the impact of the pandemic.Youth unemployment rates change by 1.53% for each 1.00% change in adult rates of a previous month (1.10% using a previous quarter of adult rates) based on a sample of 37 economies and 54 monthly periods.The pandemic adds directly 0.64% to the youth unemployment rate, while the other 0.08% pandemic effect passes through adult unemployment.The findings suggest a significant statistical correlation.Nevertheless, there is a need for further quantitative and qualitative analysis to understand the correlation between the youth and adult unemployment rates, as both were affected by the underlying economic slowdown and business closures during the pandemic.观察与建议 9. Country-specific factors contributed to differences in youth unemployment rates during the pandemic.Across the economies, data analysis also suggests the importance of country-specific differences in understanding youth unemployment.Using the US as a benchmark and accounting for adult unemployment rates and the pandemic effect, Japan and Germany have significantly lower rates of youth unemployment than expected.Meanwhile, Italy, Spain, Portugal, France, and the United Kingdom have significantly higher rates of youth unemployment, and to a lesser degree Australia, the PRC, and the Republic of Korea.For the PRC, the adult and youth unemployment rates both appear to have increased during the early part of the pandemic, but the adult unemployment rate subsequently declined while the youth unemployment rate rose higher.Notwithstanding the observed trends in youth unemployment, the findings point to different country-specific drivers that warrant further attention, including long-term labor market flexibility, participation rates across age groups, short-term conditions in the labor markets, and policy measures implemented during the pandemic.These nuances raise several questions about youth employment in the PRC.

What are structural and cyclical factors of youth employment in the PRC?
To understand the post-pandemic labor markets, it is crucial to identify the structural and cyclical factors underlying youth unemployment.While the data show that youth unemployment is positively correlated with adult unemployment, it does not differentiate job vacancy rates by age and experience.This limits the ability to assess the tightness in the labor markets and to separate cyclical demand for labor (which could differentially affect youths and adults) from structural demand, which depends on the nature of the country's production, comparative advantage, and skill requirements.Younger workers are typically at a disadvantage during periods of economic contraction compared to more experienced workers.Laying off youth workers tends to be more cost-efficient to businesses as they are typically less protected than adult workers and thus are equated to smaller losses in business productivity.The cyclical nature of labor demand is also dependent on the PRC's economy gradually shifting toward domestic consumption and services, and moving into higher value-added products and technology sectors in the coming decades.Youth employment will depend on the changing business nature of small and medium-sized enterprises (SMEs) as well as large corporations.More assessment of the longer-term influence of such sector shifts is therefore needed.The role of urbanization in the PRC will also influence youth employment through business cycles.The increasing number of college graduates and the immobility of workers appear to be a nationwide phenomenon.Location-wise, for youth workers to change their preferences from top-tier cities and industrial hubs to less-developed cities or provincial hometowns, sufficient quality jobs and stable labor markets must be created.
Youth Employment and the Pandemic Recovery in the People's Republic of China 中华人民共和国青年就业与疫后复苏 11.Has the education system adapted to youth employment?
Due to a generally affordable education system, enrollment in tertiary education among the total population of the age group that officially corresponds to tertiary education (18-27 years old) in the PRC rose from 3% in 1990 to 8% in 2000, 24% in 2010, and to 58% in 2020. 2 The pandemic, however, has introduced new challenges facing university graduates in the job market.The COVID-19 crisis, compared to other previous crises, clearly had both supply-side (education disruptions) and demand-side (businesses closing and contracting) impacts on youth employment.New graduates reached 11 million in 2022, a new high, while youth workers faced lower real wages in 2022 than in 2021.Notwithstanding the downtrend in the costs of tertiary education (i.e., costs in top universities in the PRC are lower than their US counterparts) and relatively low student debt, the lesser coverage of social safety nets for unemployment, along with the highly competitive university admission system, imply that the social costs of tertiary education are plausibly higher than the private costs paid in tuition and education expenditures.Moreover, if the education system is slow to adapt to the evolving demand in the labor market-as youth unemployment is increasingly characterized by skill mismatches for new graduates (e.g., digital know-how, proficiency in communication, and workplace and/or "soft" skills)-the social costs, which include unemployment insurance, public health spending, and financial burdens for households to support unemployed youths, will continue to rise.
The overall assessment will further depend on the education level of the unemployed youths and the labor force participation rates of youths (subject to their time spent in school); both are required to evaluate the labor market effects of increased higher education enrolment, dropout, and completion.
12. Have youth wages reflected youth labor market conditions?
The last 2 decades saw the gradual narrowing of wage gaps for all workers across business types.While the average wage in foreign-owned corporations continues to rise, the wage gap with domestic corporations, followed by state-owned enterprises, largely narrowed in the 2010s.Across business sectors, the wage gaps are increasing.The information and communication technology sector commands increasingly higher pay than other sectors.However, the real wage paid to workers could decline, adjusted for the high cost of living, especially in urban areas.Increased unemployment can drop further the real wage paid to the youth workers.Despite data limitations, the observed increase in the youth-to-adult unemployment ratio could result in a decline in the youth-to-adult wage ratio.With limited or no job experience, youth workers also have lower bargaining power than adult workers in terms of wage negotiation with potential employers.New university graduates and young migrant workers are more vulnerable as most of them are likely on flexible contracts.Therefore, the policy response to youth unemployment rests on the overall measures to stimulate inclusive and employment growth, and on specific youth-targeted analysis and measures that can be implemented to support vulnerable groups.

IV. POLICY RECOMMENDATIONS
To address the increasing youth unemployment, the government implemented several nationwide and broad-based supportive measures.Temporary allowances for unemployed workers and deferring student loan repayments are promising steps.Since the long-term solution to youth unemployment is likely to be a moving target, additional policy options are needed to address specific issues.The following policy recommendations are suggested.
13. Youth workers will benefit from having the skills demanded by the new economy.More support is needed to help the youth labor force acquire skills and training for quality and well-paid jobs in highly dynamic labor markets.Such support programs are critically important in rural and less-developed areas.The improvement and readiness of human capital should start at an early age and continue throughout working life, covering early childhood education, schooling at all levels, vocational training, higher education, and lifelong learning.High potential sectors for the future of employment include those in the "green economy" whose activities are related to climate change mitigation and adaptation.Such sectors have the potential to offer high-quality jobs to youth workers as they tend to utilize new products, services, and technology.The education system should promote innovation-driven growth to increase the supply of a versatile and skilled youth labor force.Phasing out the "brown economy" (still based on emission-intensive activities) and a greater focus on sustainable green activities in the PRC will require significant reskilling and upskilling of workers, offering job opportunities to new graduates and youth workers joining the labor market.Policy measures should recognize that jobs will be created at different skill levels, which requires appropriate interventions in the education and training system.
14.The services sector should expand its capacity to absorb youth workers as the economy recovers after the pandemic.This is particularly the case for high-contact and customer-facing sectors heavily affected by the pandemic, including catering, retail and wholesale, and culture and tourism.Fiscal and financial incentives, traditionally favoring manufacturing sectors, can be allocated toward services.The services sector should also benefit from further government support for its expansion and increased trade, domestic and external.Access to finance for SMEs in services can also generate more jobs for adult and youth workers.While regulatory changes affect the technology, financial, and property sectors, they remain important employers for youth and adult workers alike.
The coming decades will see the PRC moving further up in global value chains.This also moves the economy closer to peak demand for low-skilled workers in the manufacturing sector, which also translates to a need to transition away from low-end jobs in underdeveloped services activities.
Aspiring businesses and SMEs have the potential to play an important role in this regard.Established businesses can hire more youth workers with appropriate training programs and job-matching interventions.Support can be provided to young entrepreneurs to start their businesses, aided by a dynamic and inclusive ecosystem.
Youth Employment and the Pandemic Recovery in the People's Republic of China 中华人民共和国青年就业与疫后复苏 15.Enhanced labor mobility benefits the labor market overall, while job creation in provincial areas with high unemployment (but with lower cost of living) can support youth workers to thrive and help develop rural areas.The pandemic has reduced the real income of youth workers, especially those living in major cities.Local governments have their role to play in generating demand for youth workers while ensuring there is a corresponding supply of workers with suitable skill sets.The relaxation of the household registration system (hukou) and social security reforms provides youth workers with enough support so they can access basic public services.Policy measures may also include a combination of tax incentives and subsidized loans to support internships and employment of youth workers by SMEs, start-ups, as well as local government units in infrastructure projects.Support programs that incentivize migrant youth workers to stay in less-developed provincial areas can help reduce imbalance in the labor market in cities and urban areas, including in terms of employment opportunities, income, and available resources to maintain high-quality living standards.