Chapter 9: Human capital accumulation
It takes ten years to grow trees but a hundred years to educate people. (Guan Zhong [BC 723 or 716–646]) During the period of Chinese economic development following the arrival of the Lewis Turning Point and the disappearance of the demographic dividend, sustaining economic growth will require a disproportionally rapid expansion of those inputs characterized by increasing returns. Human capital—namely, those skills developed through education, training, and learning-by-doing experience—is one such input of economic growth. The growing shortage of unskilled workers in this specific transition period, however, creates a disincentive to human capital accumulation. If China cannot adequately cope with existing challenges facing human capital accumulation, its future growth will be endangered by two problems: one being the lack of human capital that powers innovation-driven economic growth, and the other being labor market vulnerability alongside social unrest potentially caused by severe structural unemployment. Education is the most important area in which resources are invested for the purpose of accumulating human capital. As an area with significant externality, education is not only characterized by a regular input–output relationship that correspondingly produces profit motives for private investment, but also governed by a special law that is embodied in the difference between private and social returns. This implies that, for education to sufficiently meet the demands of society, the government itself should assume the responsibility for expanding access to education.
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