The traditional demographic dividend in China is gradually fading, and the importance of the human capital has become even more prominent. This paper constructs an analytical framework of "cohort human capital dividend", taking into account the returns to education, experience, and the years of education and work experience of the labor forces in different cohorts, and measures the differences in the average level of human capital between the cohort newly entering the labor market and the cohort about to exit. By using the micro data of the China Urban Labor Survey, the paper finds that the return to education increased from 6.50% in 2001 to 9.57% in 2010, and remained above 9% from 2010 to 2023; the return to experience was extremely low before 2005, and rapidly increased after 2010, and the return to 30 years of experience increased from 21.57% in 2010 to 37.82% in 2023; after the experience-income curve reached its peak, the rate at which income declined with experience was accelerating. The higher educational attainment of the young labor force and the still high return to education in the labor market have, to a certain extent, compensated for the loss of experience caused by the exit of elderly labor force. From 2005 to 2023, the average level of human capital of the labor force aged 20-29 was 1.06-1.23 times that of those aged 50-59. The average level of human capital for the new cohort entering the labor market is higher than that of the cohort about to exit, indicating the existence of cohort human capital dividend in China's labor market. It is imperative to prioritize the accumulation and development of human capital throughout the life cycle for the sustainable progression of China's economy.

BACKGROUND

The traditional demographic dividend in China is gradually fading, and the importance of the human capital of labor force has become even more prominent. The distribution of human capital across different cohorts in China exhibits unique characteristics. On the one hand, people born in the baby boom period are gradually retiring, the number of individuals exiting the labor market each year in the future will be much higher than that of new entrants. Elderly workers have an advantage in terms of accumulated work experience, and their large-scale exit will lead to a loss of experience-based human capital. On the other hand, younger generations attaining significantly higher educational levels compared to their older counterparts, the entry of young workers will contribute to the economy with more education-based human capital.

OBJECTIVE

The goal of this paper is to answer the following question: during the process of cohort replacement of the labor force, does the benefit brought by the entry of younger workers with higher educational attainment outweigh the loss of human capital caused by the exit of older workers with more experience?

METHODS

This paper constructs an analytical framework of "cohort human capital dividend", taking into account the returns to education, experience, and the years of education and work experience of the labor forces in different cohorts, and compares the differences in the average level of human capital between the cohort newly entering the labor market and the cohort about to exit. If the younger workforce generates greater human capital gains for the economy, it can be posited that there exists “cohort human capital dividend” in China's economy, where the incoming labor force compensates for the human capital losses caused by the retirement of older workers. The returns to education and experience are estimated by using the micro data of the China Urban Labor Survey (2001-2023).

RESULTS

The return to education increased from 6.50% in 2001 to 9.57% in 2010, and remained above 9% from 2010 to 2023; the return to experience was extremely low before 2005, and rapidly increased after 2010, and the return to 30 years of experience increased from 21.57% in 2010 to 37.82% in 2023; the curvature of the experience-income curve continued to increase, indicating that after the experience-income curve reaches its peak the rate at which the income of older workers declines with experience is accelerating. Although the return to experience is increasing, the higher educational attainment of the young labor force and the still high return to education in the labor market have, to a certain extent, compensated for the loss of experience caused by the exit of elderly labor force. From 2005 to 2023, the average level of human capital of the labor force aged 20-29 was 1.06-1.23 times that of those aged 50-59. Even taking into account the bias of the survey sample, and narrowing the age range of the cohort definition, and assuming that the younger cohort has no experience, the conclusion still holds.

CONCLUSIONS

The average level of human capital for the new cohort entering the labor market is higher than that of the cohort about to exit, indicating the existence of cohort human capital dividend in China's labor market. The cohort human capital dividend has made a significant contribution to China's sustained economic growth over the past two decades. However, despite the existence of the dividend, the loss of human capital due to the exit of the elderly labor force cannot be ignored. As the human capital level of the elderly labor force gradually increases, the cohort human capital dividend may show a downward trend in the future. It is imperative to prioritize the accumulation and development of human capital throughout the life cycle for the sustainable progression of China's economy.

CONTRIBUTION

This paper makes three main contributions to the existing research. Firstly, this paper measures human capital from the perspective of cohort comparison, while previous studies have mainly focused on the aggregate human capital measurement at the national or regional level, lacking research comparing different birth cohorts. Secondly, this paper enriches the description of the returns to experience by proposing the use of the “curvature” to reflect the rate at which income decreases with experience after the experience-income curve reaches its peak, thereby better depicting the economy's demand for labor with different levels of experience. Moreover, this paper estimates the latest trends in the change of return to education.