China’s working-age population shrank in 2012, marking the beginning of a trend that will accelerate over the next two decades and have profound implications for the world’s second-largest economy. . . .
China’s labour market remains tight in many places and companies often complain that it is difficult to find qualified workers, particularly in the labour-intensive manufacturing sector.
Yet these numbers don’t mean as much as some think.
First, the trend will be partially offset because as life expectancy rises, older workers will stay in the workforce longer. This is especially true in a country where state pensions are grossly underfunded and the one-child policy leaves parents without many children to help them in old age (and what children they do have might not be willing to support them).
Second, even if the total workforce shrinks, the urban workforce will grow as the great migration from the country to the cities continues. The rapid development of the education system means that the number of skilled urban workers is still going up.
And finally, as the Economist notes, “[China's] low tax rates (giving room for future increases) and low public expectations of welfare” give its policymakers room to maneuver.
While China struggles to adjust, the rest of the world will look on with interest to see if and when China starts to open up labor-scarce industries to increased foreign investment and even (gasp!) to outsource jobs. Until then, we should keep in mind that demography is a long-term issue, not a short one.