Managing the Middle-Income Transition
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Managing the Middle-Income Transition

Challenges Facing the People’s Republic of China

Edited by Juhzon Zhuang, Paul Vandenberg and Yiping Huang

The growth model of the People’s Republic of China has been based on high investments, exports, low-cost advantage, and government interventions. This model has successfully transformed the country from a low-income to an upper middle-income economy. However, the model has generated contradictions that could undermine future growth. Making the transition to high income requires greater reliance on efficiency and productivity improvement, innovation, and market competition. This book examines the challenges faced by the People’s Republic of China in sustaining robust growth, and policy options for making a successful transition to a high-income economy to avoid getting caught in the middle-income trap.
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Chapter 16: Demographic change and its consequences for the labor market

Fang Cai


The Lewisian classical theory of economic development holds that developing countries characterized by unlimited supply of labor are bound for a dual economy, whereby modern sectors can source labor from the agriculture sector at constant wages and accumulate physical capital (Lewis 1954). The pressure on employment caused by labor supply exceeding demand therefore characterizes the entire process of this form of development. A dual economy reaches the so-called Lewis turning point when demand for labor in modern sectors exceeds supply from surplus labor in agriculture at current wage rates (Lewis 1972). While the theory remains current among many development economists, there has been less study and, indeed, agreement, on the role demography plays in shaping dual-economy development, and on the changes and challenges a country faces as it approaches such a turning point. This chapter aims to fill that knowledge gap by looking at the demographic transition in the People’s Republic of China (PRC) and the country’s experiences in approaching its Lewis turning point. As in many other newly industrialized economies in East Asia, sweeping demographic changes accompanied rapid economic growth in the PRC during its reform period. This has enabled the country to accomplish the transition from a demographic pattern characterized by high birth, mortality, and population growth rates to one of low rates in each of these areas.

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