College graduates – too many in China, not enough in America?
This post is a guest contribution by Dian Chu, market analyst, trader and author of the EconMatters blog.
“Ant Tribes” (蟻族), a term coined by sociologist Lian Si, a professor who wrote a book with that title in 2009, broadly describes China’s post-80s generation of “low-income college graduates who live together in communities with poor living standards.”
There are more than 1 million “ants” living in China’s big cities, about 46% spend more than they earn, and 80% have no savings, according to another survey in the 2010 Annual Report on the Development of Chinese Talent, released by the Social Sciences Academic Press in June.
China – 10% Jobless Rate Among College Grads
Separately, China Daily reported that the employment rate among college graduates in 2010 increased by 4.2% year-on-year with 72.2%, or 4.56 million of all graduates in 2010 found jobs as of July 1 last year, based on statistics released by the Ministry of Education.
That suggests around 30%, or 1.76 million, of new college grads in China can’t find a job, while the unemployment rate for college graduates is around 10%, which is much higher than the 4.1% average urban jobless rate in China.
And it’s only going to get worse.
China – 7 Million New Grads A Year
What’s compounding the issue of the sheer number college graduates en masse is the fact that many graduates’ expectations for jobs do not match market demands, according to a statement from a State Council meeting on May 25.
China’s Problem – Oversupplied & Mismatched
The nation owes much of its GDP (and therefore new jobs) to the manufacturing, industrial, and exporting sector, which mostly have more openings for blue collar workers instead of white collar jobs. There are simply more of them than jobs that they are qualified for, and the lack of affordable housing also has contributed to the “Ant Tribes” formation.
Furthermore, due to the imbalance of social and economic development between urban and rural areas, ‘’Ant Tribes’ are clustered around major coastal regions like Beijing, Shanghai and Guangzhou, whereas rural areas, especially in the western regions, where work environment can be difficult, have a much higher demand for college graduates.
U.S. – 20 Million More College Grads by 2025?
The study finds that currently, the number of college-education Americans is growing by just 1% a year, and the nation has been producing too few college-educated workers for more than three decades (See Chart).
If the U.S. is to make up for lost ground and respond to future economic requirements, the report says the rate of new educated workers needs to go up 2.6% a year, adding 20 million college-educated workers, includes 15 million new Bachelor’s degree holders to the economy by 2025. That will boost GDP by $500 billion adding over $100 billion in additional tax revenues.
China – Economic Growth & Urbanization
To absorb those graduates, China would have to maintain around 7-8% annual GDP growth rate, diversify its economy into high tech, financial and services oriented, and make a philosophical change to the entire education system based on quality vs. quantity.
Judging from various projections, this growth rate most likely is sustainable; nevertheless, to fundamentally diversify and revamp the economic and educational structure could be an uphill battle and would take decades.
For now, the central government has indicated it will prioritize the creation of jobs for college grads, and aims to create work through loans, subsidies, policies. Ultimately, infrastructure and housing will be built in China, and “Ant Tribes” would eventually dissipate with the expected mass urbanization to take place in the next two to three decades.
China – Beware of Frustration & Revolution
U.S. – College Degree, But No College Job
In May 2011, NYT reported that both employment rates and starting salaries for new college graduates in the U.S. have fallen sharply in the last two years. In 2009, 22.4% of all college grads had no job, and only about half of the jobs landed by these new graduates even require a college degree (See Chart).
U.S. Boomer’s Great Job Gap
U.S. – Skilled & Experienced Labor Shortage
Moreover, many boomers will likely work long past the expected retirement age partly to recoup the lost retirement savings during the Great Recession, which could delay the timeline of the “Great Job Gap”.
From that perspective and given the economic outlook of the U.S., I believe there could also be a somewhat oversupply of college graduates, at least in the short-term, and a job and experience mismatch in the U.S., particularly in the experienced professional category, as companies act in haste coping with the Boomer’s “Silver Tsunami”, and sometimes end up replacing boomers with less qualified personnel.
U.S. – College Grads Employment & Pay Under Pressure
However, based on the current U.S. labor market condition, the employment and pay level in this demographic class would be under pressure in the next few years as new college graduates flood the market in a down cycle of the economy.
This labor and demographic shift could pose a long term risk to the U.S. as it could diminish the country’s overall competitiveness.
Managing Demographic Dynamics
Both countries have some systematic supply/demand mismatch between geography, job openings, education level and skill set, which, if not properly managed, could turn out to be a much greater risk than most people realize.
Meanwhile, in the short to medium term, some U.S. companies will still continue to move operations (and jobs) to China to be close to customers and to take advantage of the large skilled labor pool with relatively lower pay scale. But at the same time, there would also be more Chinese companies expanding into the U.S. region bringing new jobs as China’s private business sectors become more mature and sophisticated.
Long term, it is up to Washington and Beijing to properly set policies to incentivize businesses, education and social systems, given each country’s makeup of the workforce, to have enough resource and job growth in place to match the future direction of their demographic dynamics.
Source: Dian Chu, EconMatters, July 4, 2011.
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