ACTUAL youth unemployment rate in China could be twice as high as official number

Peking University Associate Professor puts youth unemployment rate at 46.5% maximum

The following article has become a focus of public debate in China, a stinging reality check for many, and a call for action to the state. Skeptical of the official 21.3% statistic, a Peking University Associate Professor now puts the youth unemployment rate at an appalling 46.5% maximum.

Since its publication on Caixin, one of the most influential financial news outlets in China, this article has been reposted multiple times on various platforms and garnered significant attention. It has also been summarized in reports by CNN, Bloomberg, Nikkei Asia, etc.. That is why we are bringing you an English translation for some insight into the general sentiments about youth unemployment in China.

The author, Zhang Dandan, is an Associate Professor (tenured)  of Economics at the National School of Development, Peking University, a Peking University Boya Young Fellow and a Changjiang Scholar sponsored by the Ministry of Education. She is the leader of several national-level research projects funded by the National Natural Science Foundation of China and the National Social Science Fund.

In a gloomy job market, a good number of the labor force may choose to wait, observe, or temporarily exit the labor market. They are often overlooked in unemployment rate statistics, leading to a misjudgment of the overall labor force situation.

To analyze what’s behind the significantly increasing youth unemployment rate in China, we need to consider from both long-term and short-term perspectives, taking into account labor supply as well as demand.

From a long-term perspective, the high youth unemployment rate can primarily be attributed to the continuous impact of the COVID-19 pandemic since 2020. The pandemic has had a sustained effect on consumption, the business environment, and overall economic vitality, resulting in a slowdown in economic growth. Specifically, the GDP growth rate decreased by 2.4 percentage points compared to pre-pandemic levels.

Recently, my research team and I conducted a study based on data from a labor platform in the manufacturing centers of the Yangtze River Delta. Our findings revealed that the COVID-19 pandemic in late 2022 had a profound impact on manufacturing employment in cities like Suzhou and Kunshan. Even as of March 2023, employment had only managed to recover to two-thirds of its pre-pandemic level. The youth, being a significant workforce in the manufacturing industry, bore the brunt of this downturn.

Furthermore, since 2021, there have been intensive regulatory policies targeting specific industries such as education and training, real estate, and internet platforms. While these policies aim to regulate the industries, they have also impacted employment, especially for highly educated laborers. As newcomers to the labor market, the youth have been particularly affected, leading to a gradual increase in their unemployment rate.

Lastly, the rapid development of Artificial Intelligence (AI) technology may also exacerbate youth unemployment. According to a recent joint report by the National School of Development and Zhaopin (a job recruitment platform) titled "The Potential Impact of Large AI Models on China's Labor Market", AI technology is increasingly likely to replace human labor in China. The development of AI over the past five years and the emergence of generative large-scale AI models like ChatGPT in the last six months have led to a decline in the demand for professions with high exposure to AI technology. These professions predominantly encompass white-collar jobs such as finance, banking, translation, and sales, leading to a greater impact on highly educated individuals.

Based on the above analyses, it is evident that different influencing factors have varying effects on youth groups with different skill levels. In fact, when we classify the youth population based on education or skill levels, we can identify two relatively distinct labor markets: skilled workers and college graduates. Skilled workers are mainly employed in the manufacturing industry, which accommodates a massive workforce of around one hundred million industrial workers in China.

The Manufacturing Labor Price Index depicted in the following chart reflects the supply and demand situation of labor in the manufacturing sector. An increase in labor price indicates a shortage of supply, while a decrease indicates an oversupply.

Figures starting from the beginning of 2023 show that in February, the labor price in China's manufacturing industry reached its lowest point in recent years, indicating a significant reduction in manufacturing orders and a continuous decline in labor demand due to the impact of the pandemic. However, from March to July, the labor price gradually rebounded, indicating a positive sign of economic recovery and an improvement in the skilled labor market.

Figure 1: Manufacturing Labor Price Index for the year 2023

Data Source: Institute for New Citizen Industry and Innovation

Signs of improvement in the skilled labor market led us to a bold guess that there should be a high youth unemployment rate in the college graduates after March 2023. Information provided by the China Institute for Employment Research then substantiated our conjecture - there has been a notable surge in job applications from college graduates, whose rate of increase far exceeds that of available job positions. The job-to-applicant ratio (the number of job positions per job seeker) has sharply declined, indicating a severe oversupply of college graduates.

From the perspective of labor supply (as shown in the figure below), the number of college graduates in China has been increasing every year. Compared to the typical annual average of 200,000 to 300,000 new graduates, there was a remarkable year-on-year surge by 1.5 million in 2022, making the annual growth rate as high as 16.6%. The number of graduates from regular higher education and junior college education has increased by 17%, while the number of postgraduate graduates has increased by 12%. It is estimated that the total number of college graduates in 2023 will reach 11.58 million, an increase of nearly 1.05 million compared to 2022.

However, the total enrollment for postgraduate students in 2023 is expected to be 1.2 million, not so different from the 1.24 million enrolled in the previous year. It means more students will enter the labour market, being unable to proceed post-graduate studies.

Additionally, the substantial increase in the number of graduates can also be attributed to students who delayed graduation or opted for further studies to evade the challenges of job-hunting because of the 2020 pandemic. Youth unemployment, therefore, is a long-term problem that has finally exploded after three years of buildup. The cause behind the soaring youth unemployment rate in recent months is a combination of various factors, such as a substantial increase in college graduates and the pandemic.

Figure 2: Number of University Graduates 2015-2023

Data Source: National Statistics of Educational Development

The Civil Service Examination (commonly known as "Kao Gong") has also witnessed a significant surge in the number of candidates in recent years， which makes it unable to address the unemployment issues for the majority of university graduates.

In addition to pursuing further education and sitting the Civil Service Examination, a considerable portion of the young labor force chooses to withdraw from the labor market, which should not be overlooked. In a gloomy job market, a good number of the labor force may choose to wait, observe, or temporarily exit the labor market. This group is often referred to as "discouraged workers" or "hidden unemployment," and they are typically excluded from official unemployment rate calculations, leading to a misinterpretation of the overall labor market situation. Therefore, it becomes imperative to analyze changes in the participation rate of the labor force when discussing fluctuations in the unemployment rate.

The National Bureau of Statistics does not release youth labor force participation figures, so it’s difficult to track its changes. However, based on data we obtained from the National Bureau of Statistics in March 2023, the urban population aged 16 to 24 stands approximately at 96 million, with two-thirds of them classified as non-labor force (about 64 million) and one-third as labor force (about 32 million, among which 25.7 million are employed and 6.3 million unemployed). Among the total of 64 million non-labor force individuals, there are 48 million students, meaning there are 16 million non-students. Most of them choose to "lie flat（Tangping 躺平）," i.e. not working and relying on their parents for financial support. They are also known as "full-time children".

If we presume that all of the 16 million non-student non-labor force individuals are "unemployed," we can calculate the maximum youth unemployment rate for March 2023, which is (16,000,000 + 630,000) / (16,000,000 + 630,000 + 2,570,000) = 46.5%. This is much higher than the officially announced youth unemployment rate of 19.7% (630,000 / (630,000 + 2,570,000)).

Based on the 2021 Household Finance Survey data from the Southwestern University of Finance and Economics, approximately 75% of the 17 to 24-year-old youth who are “lying flat” after finishing school are university graduates. Among this group, 18% have completed junior college, while 56% hold a bachelor's degree or above. Compared to the survey data from 2017 and 2019, the proportion of university graduates who choose to "lie flat" and not work has been gradually increasing in recent years.

In summary,

• The high youth unemployment rate observed at the beginning of 2023 is the result of both long-term structural imbalances, such as insufficient demand, and a significant increase in the supply of university graduates in the short term;

• Currently, the total number of unemployed youth in China is about 6 million, accounting for only 6% of the overall unemployed population, having a limited impact on the overall employment situation;

• Analyses show that high unemployment rate in the short term mainly concerns regular university graduates, and most of them have graduated with a Bachelor’s degree and above;

• University graduates tend to prefer civil service positions and government-run positions.

Based on seasonal fluctuations, we expect the unemployment rate to continue rising in July and August this year.

To address the problem, it is crucial to provide proper guidance to university students to lower their employment and salary expectations and encourage them to secure employment first before being selective. Meanwhile, it is imperative to expedite economic recovery. These measures may pave the way for resolving the current youth unemployment problem effectively.