摘要： Human Capital Structural Upgrade in Catch-Up Economies
Human Capital Structural Upgrade in Catch-Up Economies: An InternationalComparison
Yuan Fuhua (袁富华) *,Zhang Ping (张平)and Lu Mingtao (陆明涛)
Institute of Economics, Chinese Academy of Social Sciences (CASS)
Abstract: Based on international comparison, thispaper arrives at the following conclusions: (1) with the progress ofindustrialization and rising per capita GDP, successful catch-up countries willexperience an upgrade from low-level human capital to high-level human capital;(2) the leap phenomenon exists in the deepening of high-level human capital andthe universalization of tertiary education is normally completed within arelatively short period of time, which has cumulative causation with highproductivity; (3) most developing countries face the critical mass of humancapital upgrade, excessive low-level human capital and slow improvement ofefficiency; (4) problems of China’s human capital structure are mainlyreflected in the excessive secondary human capital with poor quality and insufficientaccumulation of tertiary human capital. According to the patterns of humancapital deepening, the fostering of human capital in the current stagedetermines whether China’s economic transition can succeed in the coming coupleof decades. In order to mitigate the potential risks of belated transition,China must proactively seek the path of human capital upgrade.
Keywords: growth,human capital structure, efficiency
JEL ClassificationCode: J24
Economic catch-upboils down to the catch-up and structural upgrade of human capital. Massindustrialization provides an impetus to the structural evolution of acountry’s primary human capital (primary education), secondary human capital(secondary education) and tertiary human capital (higher education). Based onthe analysis of this paper, the following patterns are revealed: the trajectoryof human capital deepening encompasses two levels, i.e., the “S-shaped” curveand progressive saturation of the increasing average length of workforceeducation, as well as the “inverted U-shaped” curve and progressivesubstitution of human capital distribution.
Evolution of humancapital in catch-up economies finds expression in the following three models:first, the Japan-South Korea model featuring the dominant share of highereducation, rapid upgrade from secondary human capital to tertiary human capitaland synchronized improvement in the quality and coverage of education at alllevels. China represents another model of human capital evolution featuringmass industrialization supported by secondary human capital, which representsthe dominant share. The third model is represented by Latin American countries,where primary education is much more common than secondary education in theworkforce. Thus, this paper arrives at the following findings: (1) Successfulcatch-up economies rapidly expanded college education within a short period oftime generally less than 15 years and experienced a “leap phenomenon” in thesophistication of human capital structure that fueled industrial upgrade in thenext 15 years. (2) For developing economies, the turning point of “invertedU-shaped” curve for the share of secondary human capital failed to appear,which impeded the upgrade towards tertiary human capital. Problems of criticalmass and excessive low-level human capital are striking.
The level of humancapital makes a remarkable difference in the growth performance of a country.Judging by the effect on economic efficiency, different forms of human capitalstructure have different externalities. Higher level of human capital goeshand-in-hand with higher economic efficiency. Given the challenges in China’shuman capital structure and the requirements of sustainable growth, seeking anappropriate path of human capital deepening is an important policy objective.
1. Structural Variations in the Process of Human Capital Deepening
Economic catch-up isessentially a process of human capital deepening, which contains two aspects:the increase in average length of workforce education and the rising share ofbetter educated workforce in the overall population. Based on the structuralchange of primary, secondary and tertiary education in China over decades, weprovide the following description of the course of human capital deepening：(1) “S-shaped” curve and progressivesaturation of increasing average length of workforce education. In the courseof mass industrialization, the length of primary education increases to reach thesaturation point of six years of primary school. On this basis, secondaryeducation develops rapidly with average length of workforce education reachingthe saturation point of six years of middle school. Afterwards, the length ofcollege education for the workforce increases to approach the saturation pointsupported by rising per capita income. (2) “Inverted U-shaped” curve andprogressive substitution of human capital distribution. Distribution ofprimary, secondary and tertiary education in the workforce reveals thefollowing long-term tendency: In the stage of mass industrialization, the shareof workforce with primary human capital increases before decreasing, with thedeclining share of primary human capital substituted by the rising share ofsecondary human capital. In the course of industrialization, the share ofsecondary human capital increases before decreasing, while the share ofworkforce with tertiary education increases until high-level human capital isextensively distributed in the workforce. This part is focused on the analysisof the process of primary and secondary human capital deepening.
1.1 “S-shaped”Curve and Progressive Saturation of Increasing Average Length of WorkforceEducation
“S-shaped” curve andsaturation of the length of primary education extensively occurred in newlyindustrialized economies, while “S-shaped” curve and saturation of the lengthof secondary education occurred in successful catch-up economies such as Japanand South Korea. For developing economies like Latin America, Southeast Asiaand China, their secondary human capital is approaching the saturation point ofthe “S-shaped” curve.
1.1.1 Data explanation
Figure 1(a) depictshuman capital structure and the tendency of its variation. First, the followingeconomies are shown in the following chart from the left to the right: I. Sixcountries of Latin America (Argentina, Brazil, Chile, Colombia, Mexico andVenezuela); II. Four countries of the Southeast Asia (Indonesia, Malaysia,Thailand and the Philippines); III. China; IV. Japan; V. South Korea. Second,the three curves from upper to lower in the chart respectively denote theaverage level of education for the workforce of the three age groups of 20-34,35-49 and 50-64 years respectively for each country or region. Third, eachcurve for an age group is consisted of nine time points, i.e., 1970, 1975,1980, 1985, 1990, 1995, 2000, 2005 and 2010, with each time point correspondingto a length of education. Fourth, the three curves of human capital upgrade orsubstitution from upper to lower have the following implications: Given that wehave employed the age group with an interval of 15 years, the lower curve isthe renewal of the adjacent upper curve with a lag period of 15 years.Performance of human capital aged between 20 and 34 years at a certain timepoint can be regarded as the human capital tendency for the age group of 35-49after 15 years. Therefore, this graphic methodology has an extrapolative effectof 15 years. Similarly, with the age groups of 35-49 and 50-64 as baseline, the human capital status 15 or 30 years ago can be inversely derived.
By now, the Barro-LeeChina data estimation sequence in the EDStats database is based on China’scensus data of 1982, 1990 and 2000 (Barro and Lee, 2010). Statistical scope of secondary education includes juniormiddle school, high school and secondary technical school, while collegeeducation includes junior college, undergraduate and postgraduate education.Educational data estimation sequence of 2005 and 2010 is extrapolated by age.Statistical scope on education of ChinaYearbook has changed since 2005, with secondary education including juniormiddle school and high school and college education encompassing juniorcollege, undergraduate and postgraduate education.BL2013_MF_V1.3(Barro-Lee.com) published by Barro-LEE employs China’sdemographic Census data of 2010 for update. Data in the graphics of this paperare calculated based on EDStats database and BL2013_MF_V1.3.
1.1.2 Human capital catch-up and saturation of length of primary andsecondary education
Figure 1(a) andFigure 1(b) show the catch-up of human capital across various countries andregions between 1970 and 2010, as well as the creation of the primary andsecondary echelons of education. First, let us look at Japan, a typical case ofgradual saturation of two levels of education. In the 1990s, the length ofprimary education for Japan’s three age groups of 20-34, 35-49 and 50-64 allreached six years. In fact, as early as in 1970, length of primary educationfor Japan’s workforce aged between 50 and 64 years already reached five years. Furthergoing back by 15 to 30 years, i.e., around the 1950s, Japan already laid asound groundwork of primary education that became a key driver of economic growth(World Bank, 1993). Compared with other industrialized catch-up countries,Japan had a relatively sound basis of secondary education with average lengthreaching 3.4 years and 1.5 years respectively for the age groups of 20-34 and35-49 in 1970. Since 2000, the length of secondary education saturated for boththe age groups. Similar to Japan’s situation, the average length of middleschool education in South Korea also reached 6 years for the age groups of20-34 and 35-49.
In 1970, the lengthof primary education for the three age groups of 20-34, 35-49 and 50-64 in thesix countries of Latin America stood at 3.2 years, 2.8 years and 2.5 yearsrespectively. Among them, the length of education at this level began tosaturate for the age groups of 20-34 and 35-49. The four countries of SoutheastAsia shared similar initial conditions and path of deepening for primaryeducation with Latin American countries, with top two curves beginning tosaturate to the six years of primary education in 2010. Although countries ofLatin America and Southeast Asia demonstrated a fairly strong momentum of humancapital catch-up, their gaps with Japan and South Korea began to emerge in thecreation of the secondary echelon of education. For instance, the average lengthof education for the age groups of 20-34 and 35-49 was between three and fouryears for countries of Latin America and Southeast Asia in 2010, while Japanand South Korea generally reached the level of six years.
A further statistical analysis reveals that during sample period under observation, the averagelength of primary education for countries of Latin America and Southeast Asiaincreased by 0.7 years for each interval of a decade, while the length ofprimary education increased by about one year for South Korea; at an intervalof a decade, the per capita length of secondary education for countries ofLatin America and Southeast Asia increased by about 0.7 years, while the samefigure grew by one year for South Korea and Japan. Thus, the accumulation ofhuman capital varies greatly among countries of economic catch-up.
1.1.3 Tendencies of China’s primaryand secondary human capital variations
Generally speaking,China shares similar initial conditions of primary human capital and the pathof deepening with countries of Latin America and Southeast Asia. In 2010, thelength of education approached six years for the age group of 35-49 and fiveyears for the age group of 50-64. Nevertheless, the length of primary educationfor the age group of 20-34 declined in the period between 2000 and 2010. In1995, 2000, 2005 and 2010, this figure was 5.4, 5.3, 5.1 and 4.9 yearsrespectively. As can be found through the inverse derivation of age groups,this phenomenon is related to the shrinking of primary education for the agegroup of 15-19 fifteen years before.As for secondary human capital, since 2000, the length of secondary educationin China grew faster compared with Latin America and Southeast Asia, with theaverage length of middle school education for the age group of 20-34 reachingthe level of five years by 2010.
1.2“Inverted U-Shaped” Tendency and Progressive Substitution of Human CapitalDistribution
Distribution ofhuman capital is defined by the shares of workforce with primary, secondary andtertiary education in the total workforce of various age groups. As shown inFigure 2(a) and Figure 2(b), in 2010, 11% of China’s workforce aged between 20and 34 years received primary education and 73% received secondary education.In addition (not listed in the chart), 15% of workforce received collegeeducation and 1% received no education, adding up to 100%.
Figure 2(a) displaysthe variations in the share of primary human capital in the workforce of the agegroups of 20-34, 35-49 and 50-64 in the six countries of Latin America, fourcountries of Southeast Asia, as well as China, Japan and South Korea. Figure2(b) sequentially shows the variations in the share of secondary human capitalin the workforce of the age groups of 20-34, 35-49 and 50-64 in above-mentionedcountries and regions. A basic reality is that the share of workforce withprimary level of education went through an “inverted U-shaped” process, whichis common to newly industrialized economies. “Inverted U-shaped” curve for theshare of workforce with secondary level of education occurred in successfulcatch-up countries of Japan and South Korea. The shares of secondary humancapital in developing economies of Latin America, Southeast Asia and China arecurrently on the rise along the “inverted U-shaped” curve and the downward turningpoint is yet to occur.
For South Korea andJapan as countries with successful economic catch-up, the above-mentionedtendencies in the deepening of human capital are embodied in the substitutionof a lower level of human capital by a higher level of human capital that beganto play a central role in economic growth. Take Japan for instance, between1970 and 2010, the shares of primary human capital for the age groups of 20-34and 35-49 went down from 35% and 59% to 3% and 6% respectively, while thecombined share of secondary and tertiary human capital all exceeded 90% for bothage groups. Meanwhile, when the share of secondary human capital reached afairly high level, the tertiary level of human capital substituted secondarylevel of human capital. Compared with Japan and South Korea, the human capitaldistribution in Latin America, Southeast Asia and China only went through thesubstitution of primary human capital by secondary human capital withinsignificant signs of human capital upgrade towards a higher echelon.
Declining average length of primary education for the age group of20-34 in China since 2000 as shown in Figure 1 (a) stems from the problems ofprimary school education quality in the 1980s and 1990s. According to Barro andLee (1993) and Fredriksen (1991), the high dropout rate of China’s primaryeducation during this period of time could be a reason for the decliningaverage length of education. As for the analysis on the problems of China’sprimary school education since 2000, please refer to Gui Ping, 2013.Development of secondary vocational education and middle school education sincethe mid-1980s led to increasing average length of education for China’sworkforce aged above 15 years. In recent decade, the share of China’s workforcewith primary school education (ACE group above 15) nosedived and the share ofsecondary human capital surged. Hence, in this paper we focus on the analysisof secondary and tertiary human capital.
2. Leap Phenomenon and Critical Mass in the Evolution of HumanCapital Structure
2.1 ThreeModels for the Evolution of Human Capital Structure
Based on the statusof human capital deepening in the sample countries, the evolution of humancapital structure falls into the following three patterns during the sampleperiod under observation: The first is represented by Japan and South Koreafeaturing the significant share of higher education, rapid upgrade of secondaryhuman capital towards tertiary human capital, and synchronized qualitative andquantitative improvement of education at all levels. The second model is theChina model characterized by mass industrialization largely supported bysecondary human capital and the overwhelming share of secondary education inhuman capital distribution. The third model applies to countries of LatinAmerica with a lopsided proportion of primary education that dwarfs secondaryeducation. Malaysia is closer to the China model while Thailand, Indonesia andthe Philippines are closer to the Latin America model.
The length ofeducation for the primary and secondary human capital of Japan and South Koreareached fairly sufficient saturation and after the “inverted U-shaped” patternof the share of primary human capital, the share of secondary human capitalalso underwent an “inverted U-shaped” pattern. These countries are currently inthe process of rapid deepening of tertiary human capital, demonstrating theleap phenomenon in the length and coverage of higher education. Compared with Japanand South Korea, developing economies of Latin America and China encounteredproblems in the catch-up stage of secondary human capital with the quantitativeexpansion of secondary education preceding qualitative improvement (Hofman,2000), resulting in the bloated medium- and low-level human capital. Moreover,the upgrade of higher education in these countries is seriously impeded byhurdles that appear to be insurmountable.
2.2 LeapPhenomenon of Human Capital Upgrade
Patterns of humancapital evolution in Japan and South Korea are characterized by the continuityin the upgrade of primary, secondary and tertiary levels of education and inparticular, the short-term leap phenomenon in the upgrade and increasedcoverage of tertiary education. As shown in Figure 3(a) and Figure 3(b), thespecific expressions are as follows:
2.2.1 15-year leap phenomenon of tertiary humancapital upgrade
Countries ofsuccessful economic catch-up generally completed the rapid increase in thelength and coverage of college education within a short span of 15 years. Takethe age group of 20-34 that foretells the sophistication of human capital inthe next 15 years for instance, it took 15 years for South Korea and Japan toincrease the length and coverage of college education. Specifically, (1)between 1980 and 2000, the average length of college education for the agegroup of 25-34 in South Korea increased from 0.6 years to 1.1 year and theshare of workforce with higher education in this age group went up from 21% to52%; (2) as an early country of successful catch-up, Japan universalizedcollege education between 1975 and 1990 with the average length of tertiaryeducation for the age group of 20-34 up from 0.7 years to 1.4 years and theshare of workforce with higher education up from 21% to 44%.
2.2.2 Pattern of human capital upgradeembodied in the 15-year leap phenomenon
The length ofcollege education and the share of workforce with college education for the agegroup of 20-34 basically foretell the human capital upgrade for the age groupof 35-49 after 15 years and the age group of 50-64 after 30 years. For tertiaryhuman capital across the age groups, what had been done 15 years ago paves theway for the result that comes out 15 years later. The process of human capitalsophistication occurs in such a tidal movement of the 15-year leap.
2.2.3 15-year leap provides educationalreserves for industrial upgrade 15 years later
It needs to be notedthat the starting point in the leap towards higher education for successfulcatch-up countries all occurred 15 years before the attainment of industrialupgrade, i.e., 15 years of advanced human capital reserves preceded theenhancement of industrial efficiency and formation of innovation mechanisms. SouthKorea is a typical example. “With diminishing demographic dividends after the1980s, South Korea lost its comparative advantage of cheap labor, forcing it todevelop its own R&D capabilities” (Research Group of China’s EconomicGrowth Frontier, 2014). Great efforts to foster advanced human capital afterthe mid-1980s undoubtedly became an important driver of South Korea’s economictransition in the new century.
Compared with thedeepening of tertiary human capital in Latin America, Southeast Asia and China,the leap phenomenon is much more striking in the course of higher educationdevelopment in Japan and South Korea. As shown in Figure 3(a) and Figure 3(b),the curves of the length of higher education and the share of workforce withhigher education for Japan and South Korea are much steeper compared with thoseof the three developing countries and regions. This contrast does not appear inFigure 1(a), (b) and Figure 2(a), (b). For instance, the average length ofcollege education for the age groups of 20-34 and 35-49 went up by 0.41 yearsand 0.40 years in a matter of four decades for the six countries of LatinAmerica; and increased by 0.60 years and 0.33 years respectively for the fourcountries of Southeast Asia. What stands in sharp contrast is that thesefigures increased by 1.7 years and 1.5 years respectively for Japan and 1.6years and 0.9 years for South Korea. The reason that such difference deservesour attention is that if higher education of Latin America and Southeast Asiadeepens along the existing path, it will take at least another four decades forthem to catch up with Japan and South Korea.
Different fromprimary and secondary human capital, the creation of tertiary human capitalrequires much greater cost and policy impetus. For a few countries ofsuccessful catch-up such as Japan, South Korea and Singapore, theuniversalization of their higher education was all built upon the foundation ofan innovative environment that came into fashion in the process ofindustrialization, relatively high per capita income, fair income distributionand vigorous government support. For most developing countries, the 15-yearleap of tertiary human capital for developed countries is a “15-year barrier.”Transcending this barrier will lead to a virtuous cycle of human capitalsophistication, industrial upgrade and sustained growth. Otherwise, the risksof unstable and unsustainable growth may occur.
 The 15-year leap phenomenon of highereducation is based on the experience of Japan and South Korea and can bebroadly described as the completion of advanced human capital upgrade in arelatively short period of time. Given the close correlation between industrialupgrade and advanced human capital accumulation, the rapid sophistication ofhuman capital is conducive to buffering the potential risks that stem frombelated economic transition.
2.3 Critical Mass in the Sophistication of Human Capital and Excessive Low-level HumanCapital for Developing Countries
2.3.1 Critical mass in the upgrade of human capitalfor developing countries
For the convenienceof analysis, we define the critical mass in the deepening of human capital overthe course of long-term growth as follows: The turning point on the “invertedU-shaped” curve of the share of secondary human capital fails to appear,resulting in excessive medium- and low-level human capital in the economy thatprevents the leap towards growth led by tertiary human capital. Overcoming sucha critical mass marks a qualitative leap in the structure of human capital.Such a qualitative change may not occur automatically. It requires the premiseof forward-looking objectives of industrial structure and propels theimprovement of future economic efficiency.
Judging by thecomplete upgrade pathway of primary, secondary and tertiary human capital, thepool of secondary human capital actually serves as a buffer: on the one hand,after the universalization of primary education, the development of secondaryeducation increased the share of workforce with secondary education; on theother hand, the development of higher education will reduce the share ofworkforce with secondary education. As an intermediate link connecting primaryand tertiary education, secondary education plays the role of buffering andstructural integration in the continuous upgrade of human capital. Therefore, arational assumption is that once the leap towards tertiary human capital provesdifficult and the path for the universalization of high-level human capital isblocked, medium- and low-level human capital will become excessive in theeconomy, stunting the formation of innovation mechanisms.
For the sake ofsimplicity, Table 1 identifies the distribution of main depositors (i.e.,workforce aged between 35 and 54 years) with primary, secondary and tertiaryeducation across various countries and regions. This index generally reflectsthe current status of human capital in the workforce. With Japan and SouthKorea as the baseline of comparison, what happened before and after thecritical mass was crossed in the human capital upgrade can be seen: the turningpoint of “inverted U-shaped” curve for the main depositors of secondaryeducation roughly occurred at the level of 50% to 60%. This turning point wasassociated with the rapid decline in the share of workforce with primaryeducation and the rapid increase in the share of workforce with highereducation. Using this convenient measure, we may differentiate the China modeland the Latin America model in the evolution of human capital structure.
2.3.2 Stuck at the low level: evolution of humancapital structure for Latin America
The countries ofLatin America remain in the stage of growth dominated by primary and secondaryhuman capital. In 2010, the share of workforce with primary education was 41%for Latin America, which is 13 percentage points higher than that of China andexceeds the level of Japan and South Korea by over 30 percentage points.Although the share of workforce with higher education in countries of LatinAmerica somewhat exceeds the level of other developing countries, it is farbelow the level of Japan and South Korea. The share of workforce with secondaryeducation is excessively low, which shows that the economic structure of thesecountries is unfavorable to the development of secondary education. In general,for countries of Latin America, their economic growth is led by primary andsecondary human capital with an excessive share of primary education.
2.3.3 Stuck at the low level: evolutionof human capital structure for China
China’s humancapital structure appears to be heading towards another extreme with an excessof secondary human capital particularly deserving our attention. Between 1970and 2010, China’s mass industrialization led to a rapid accumulation of primaryand secondary human capital. After 2000, despite the significant decrease inthe share of workforce with primary education, the share of secondary humancapital has been rising rapidly. In 2010, the combined share of primary andsecondary human capital in main depositors reached 95%, of which, the share ofsecondary human capital registered 63% (secondary human capital of the two agegroups of 20-34 and 35-49 accounted for 73% and 65% respectively, while thesefigures are 28% and 45% respectively for Japan and 19% and 55% respectively forSouth Korea). No matter with the human capital structure of Japan or SouthKorea as baseline or in comparison with countries of Latin America andSoutheast Asia, China appears to have a significant excess of secondary humancapital. In other words, the pathway of upgrade towards tertiary human capitalseems to be completely blocked.
Figure 4: Average Length of Tertiary Education and the Share ofWorkforce with Tertiary Education of Various Regions (Age Group of 20-34)
Source: EDStats, BL2013_MF_V1.3(Barro-Lee.com).
Note: Countries in (a) and (b) are the six countries of LatinAmerica, four countries of Southeast Asia, as well as China, South Korea andJapan. The base period is 2005.