Human Capital, Labor Force Participation, and Social Inequality Causes and Implications Related to the Change of Labor Income Age Profile in China

Yong Cai, University of North Carolina at Chapel Hill
Xiwei Wu, Renmin University of China
Ke Shen, Fudan University
Ding Li, Renmin University of China
Feng Wang, University of California, Irvine

This paper examines the demographic and socioeconomic causes for a major shift in the age profile of labor income observed in China. In the first decade of 2000, the peak earning years shifted from around age 40 to around age 30. We find that it is a combined effect of three major demographic-economic changes in China: 1) a rapid rise of human capital, especially among the younger generations, 2) a structural change in economy driven by rapid industrialization, urbanization and globalization, and 3) a decline in labor force participation among older generations due to competition in the labor market, early retirement regime and the depressing effect of improving social security bene?ts. Comparing China with the historical experiences of the United States and Taiwan, we then assess the long-term trajectories in income age profile changes, and discuss their socioeconomic implications in aging societies, with a special focus on inequality.