China’s youth unemployment rate has risen to a record high, leaving many college graduates to take on low-paying jobs or settle for jobs below their skill levels. According to official data, urban employment amongst 16- to 24-year-olds in China recorded 20.4% in April, four times the broader unemployment rate, with millions of college students expected to graduate this year. This phenomenon has led to a misalignment between the demand and supply of high skilled workers, as the economy has been unable to keep up with the expansion of college education that occurred in the late 1990s.
Underemployment is another issue that Chinese youths and policymakers are grappling with. A paper co-authored by Xiaogang Li, a professor at Xi’an Jiaotong University, and Yao Lu, a professor of sociology at Columbia University in New York, estimates that at least another quarter of college graduates in China are underemployed, on top of the rising youth unemployment rate. Underemployment occurs when people settle for low-skilled or low-paying jobs, or sometimes part-time work, because they are not able to find full-time jobs that match their skills. These jobs were previously occupied by the non-college educated.
The negative impact of graduating during a difficult economic period has been well documented in other societies. Research has shown that college graduates who start their working lives during a recession or economic downturn earn less for at least 10 to 15 years than those who graduate during periods of prosperity. The Bureau of Statistics in China shows that 6 million out of the 96 million 16- to 24-year-olds in the urban labor force are currently unemployed. Goldman Sachs estimates that there are now 3 million more unemployed urban youths relative to the period before the Covid-19 pandemic.
This increase in unemployment is likely to make it more urgent for the Chinese government to act. Diminished job prospects could fan dissatisfaction among the youths, which could upset the social contract the Communist Party has with the people in China. The impact of youth unemployment and underemployment could potentially have very negative ramifications for the economy, given China’s aging and declining population will reduce its economically-active population.
Although youth unemployment is not unique to China, few other societies are seeing the scale of the problem. The Chinese central government is very aware of the problem, and in April, it announced a 15-point plan aimed at matching jobs with young seekers more optimally. This plan includes support for skills training and traineeships, a pledge for a one-time expansion of hiring at state-owned enterprises, and support for the entrepreneurial ambitions of college graduates and migrant workers.
However, addressing fundamental mismatches is much tougher, as there is usually a disjuncture between the labor market and higher education institutions. In China, universities have some sense of what the labor market situation is and what employers are looking for, but often their understanding is outdated and may be distorted from time to time. There is also a mismatch between changing expectations of young people, who are more educated, and an economy that is not keeping up with their aspirations.
Even as youth unemployment rates climb, China projects nearly 30 million manufacturing jobs could go unfilled by 2025, according to the country’s Ministry of Human Resources and Social Security. This is nearly half of all the jobs in the sector. It was planned that China’s economy would transform from labor-intensive industry to more technological, with a strong service-oriented, knowledge economy. However, this transition seems to be half-hearted in China’s state-driven economy.
The Covid-19 pandemic and China’s “zero Covid” policy led to factory closures and a two-month lockdown in the financial capital of Shanghai last year, as the broader economy ground to a halt. Goldman Sachs says the slackening in the services sector at the start of the year, before China reopened, could have contributed to the current high youth unemployment rate.
Goldman Sachs economists estimate that China’s youth unemployment rate will likely peak in the summer months in July and August with the influx of fresh college graduates. Restoring the consumption power of the young, a demographic that typically accounts for almost 20% of consumption in China, by getting young people back to work would help China’s economic recovery. However, the jobs available may not match what young people desire or are trained to do.
The challenge of underemployment amongst Chinese youths is a pressing issue that policymakers need to address. Although China’s central government has taken some measures, fundamental mismatches between the labor market and higher education institutions, as well as changing expectations of young people, need to be addressed. A thriving services-driven economy is predicated on support for the private sector, and small- and medium-sized companies need access to credit. Until this happens, young graduates will not be able to work in the new industries of the future. This will have a negative impact on China’s economic transition, and the country must act quickly to prevent any further damage.
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