China has always had a younger retirement age than most of the rest of the world. For most of recent history, the country has been able to count on a huge flow of young people into the workforce. With so many young hands in fields, on production lines, and paying into the pension system, Chinese society could easily afford to move workers along into retirement.
But things have changed. Decades of the one-child policy have left China with a paucity of young workers. Beijing has now made it clear that the workers will need to stay on the job longer to earn their years of rest.
Accordingly, Beijing announced in September that statutory retirement ages will rise. For men, the age will go from 60 to 63. For women in blue-collar jobs, the age will increase from 50 to 55. Women in other lines of work will see their statutory retirement age rise from 55 to 58. So as not to shock those just approaching the old statutory ages, the authorities have announced that the increase will take place gradually over the next 15 years.
The new rules still leave China with a younger retirement age than most of the rest of the developed world, but demographic trends say this is likely to change as the regime is forced to bring in similar adjustments in the coming years. Decades of the one-child policy have already left China with twice the number of retirees for each person of working age than was the case 25 years ago.
The implicit pressure created by this situation has already impelled the authorities in Beijing to loosen the old one-child rules. However, as it has turned out, Chinese families are no more interested in having more children now than they were under the old law’s strictures. This situation means that matters will become more intense in the coming years and require additional upward adjustments in the retirement age. Even if fertility rates had risen with the loosening of the old law, it would have taken 15 to 20 years for rising birth rates to affect the labor situation and pension flows. As it is, no such relief is likely.
In addition to their wrong-headed one-child policy, the central planners have compounded their problems with another mistake. Some years ago, Beijing decided that the unfolding Chinese economy would require vast numbers of college graduates, especially in engineering and science. The authorities pushed the youth to go this route and financed it.
For years, China graduated more engineers than just about the rest of the world combined. However, as it has turned out, the economy needs less of these graduates than the planners anticipated. Many young graduates cannot find work appropriate to their level of education and remain unemployed rather than take a menial job. At last measure, China’s youth unemployment rate (for ages 16 to 24) stood at almost 19 percent. So, in addition to having fewer young workers than are needed, quite a large portion of the young population seems to have opted out of the active workforce even as China already faces a shortage of factory workers.
Beijing thus had little choice but to revise the retirement ages. Keeping working men and women in white-collar jobs for three additional years and women in blue-collar jobs for an additional five years gives time to assemble enough young workers to take their place in the tax-paying, production part of China’s economy. It also means that existing workers will pay into the pension system and not draw on it for three to five more years than they would have under the old retirement laws. And since the new rules are not likely to change life expectancy, the new retirement rules will have those drawing on the system for three to five years less than they would have under the old system.
Given China’s low fertility rate, this hike in the retirement age will not be the last. Beijing will likely have to raise the statutory retirement ages again, possibly even before the 15-year transition ends. To be sure, similar pressures exist in Japan, Europe, and the United States, but they are nowhere as acute as in China.
