Introduction
Inequality is a complex socio-economic
issue for policy makers in many countries. China’s rapid development with rising
inequality provides a setting for many developing countries to learn. From the
1980s China’s income inequality is rising particularly between urban and rural (Shi, 2012). Urban and rural income inequality in
China is high compare to other developing countries (ADB, 2007) and even
though there is a recent slow-down on the inequality indicator it may have
under-estimated the actual condition.
Rapid growth has transformed the
economy from agricultural to knowledge-based industrial economy which requires
more skilled workers (Roberts, 2014). The rapid rise of Chinese skill premium
in conjunction with an upward trend in relative demand means that the recent
technological change has been skill-biased (i.e. Li & Baoping, 2008; Li,
2010). To overcome the skill mismatch in
the labor market, the government has established vocational education training
(VET) institution particularly in industrial area close to urban settings.
Furthermore, Chinese government has set regulations for VET’s national
curricula and teacher’s qualification. However, more needs to be done to
improve VET access particularly to solve the urban rural inequality problem.
The paper would like to suggest that the Chinese government should increase
fiscal spending to the rural areas for establishing upper secondary VET school.
Does inequality matter in China?
From the 1980s to the present, China’s
remarkable growth has resulted to a structural change in the economy,
transforming from an agricultural to knowledge-based industrial driven economy
(Brandt & Rawski, 2008). This poses challenges on income distribution where
growth is mainly concentrated in urban area. The ratio of urban household
income per capita to rural one rose to 3 times higher in the last decade (Shi,
2012 p.1), which makes China as one of the highest urban-rural income gap country
in the world (Sicular et al, 2007 p.4).
After an increasing trend of income
inequality, the indicator is slowing down in recent years. However, the
slow-down is unconvincing since the under-representativeness of people with
extremely high income in the sample (Li and Luo, 2011) and the household income
survey is based on registration instead of residency which pose a serious
problem of rural migration omission (World Bank, 1997 p.19). Despite the
survey’s measurement error, China’s income inequality is high compare to other
developing countries creating several challenges to the economy.
China’s inequality can limit poor
people opportunities, undermine their utility, and in the long term can be
harmful for political stability. Knight & Li (1993) found that Chinese
children in poor rural household has lower education compared to children from
rich household, implying high intergenerational educational persistence, which
may in economic drag. Poor household has lower utility indicated by urban
residents’ life satisfaction is 60% higher than rural residents (He et al.,
2007 pp.30-32). In addition to the drawback from the utilitarian framework, the
income gap has cause symptoms of social distress which may threaten the power
of ruling party and creating political instability in the future (Fortune,
2013).
The urgency in improving VET
As the economy transforms from
agricultural to knowledge-based industrial driven, the country’s productivity
increase. Under the production function, Solow explains that productivity is
the residual of growth thereby indifferent in the changes of production
factors, or factor neutral. However, there are evidences in several countries that
labor, as one of the production factors, is segregated between skilled and
unskilled workers, consequently as productivity increases skill premium also
rises (i.e.
Kiley, 1999; Violante, 2016). This implies that productivity is factor biased.
As technology grows the demand for skilled labor rise faster. This is known as
skill-biased technological progress which leads to income inequality (Goldin
and Katz, 2008). The analysis is compatible with China case study, where
manufacturing worker mainly located in the urban has higher income compare to
agricultural workers located in rural area.
The industry is facing rising wage
from urban labor (Li & Baoping, 2008). This creates opportunity for rural
labor. However, the rural residents are mostly agriculture workers who have
lack of education and skill to work in the manufacturing sector. Only a small
portion of rural workforce attend school and vocational institution (SCMP,
2015). Moreover, a report from Chen, Mourshed, & Grant (2013) elaborates
that manufacturing companies are failing to find high skilled employees (p.3).
Furthermore, the report predicts that there will be shortage of 16 million
vocationally-trained workers by 2020 (p.6), emphasizing the high demand for
VET.
The government has formulated VET
policy with limited focus on rural vocational education to reduce urban rural
inequality. There is an existing VET policy for teacher’s qualification that teachers
must undergo trainings and work in the industry and national VET curricula
(Ministry of Education, 1996). However, vocational institution is mainly
established in industrial area while technical training opportunities for rural
workforce remains limited (Lai et al., 2011 p.2) and vocational institutions in
rural area are under-resourced (OECD, 2010 p.1).
To reduce inequality, the government
has approved an Income Distribution Plan by enhancing social safety net and
adjust taxes for the rich. These are supported by an anti-corruption policy.
From 2012 China has put anti-corruption as a serious agenda. They arrested more
than 100,000 officials, which is a striking figure compare to previous years
(Economist, 2015). In addition, from the list of income distribution plan, the
Chinese government will increase education funding. However, the education policy
formulation and implication is unclear. It does not specifically elaborate
which types of education policy. If it is concerning basic compulsory education,
then is not a sufficient solution for inequality. In particular, it does not solve
China’s inequality problem which is caused by skill-biased technological
change.
Recommendation
I recommend that the Chinese
government should increase funding for the vocational education in rural area so
that providing opportunity for rural worker to increase their skill and to work.
VET will give benefit for rural people a higher return on education. This is
particularly significant since poor rural students are giving larger relative
investment for lower return compared to affluent urban students (Bingqi,
2011). Furthermore, VET education should
be provided in upper secondary school, instead in tertiary level as the
government mainly focused, since rural worker can work as soon as they graduate
from secondary school, furthermore providing the industry with younger thus
cheaper labor. Accordingly, Chinese economy will also benefit since it increases
the supply of skilled worker needed.
The VET school should use a benchmark
from the success of Germany’s dual-system. The system creates institutional
linkage between schools and workplace that after several years of schooling the
student has the opportunity to take apprenticeship. This is in line with the
government concern to increase trained-workers (Roberts, 2014). The system
which combines vocational education in school and training in the workplace is
feasible to be implemented in rural China for several reasons. Firstly, because
the government is a central-planned government which can impose policy to
regional level. Secondly, Chinese government is already familiar with the
system since they already have collaboration with German government and
companies such as German Technical Cooperation in various VET projects (Li,
2013 p.3).
However, in implementing the policy,
the government may face challenges which are budget constraint and ensuring
quality amongst local VET. Firstly, Chinese government may face fiscal
budget constraint. To reduce fiscal burden, the government can divide the
transfer to several phases. Regions are selected according to their income per
capita for different phase of funding. This means that regions with lower
income per capita should have the priority to receive funding. Another solution
is the government should cooperate with countries who have business linkage and
also interested in improving vocational education in China, such as Australia
(Smith, 2006).
Secondly, the government will
face challenges to ensure the quality of the rural VET. To ensure the rural VET
meet the national standard, the government should closely monitor each local
VET. Furthermore, as business engagement in the program is essentially
important in meeting skill demand, the government should encourage business
commitment to provide apprenticeship for teachers and students by imposing
regulation, or collective action through industrial associations, or giving
incentive through tax reduction, as some OECD countries have applied (Hoeckel,
2008 p.8-9). By involving in the local VET, the industry can ensure the
prospectus worker’s technical qualification, reduce time and cost in training,
and have early engagement with workers thus improving labor loyalty and
reducing turn over.
Conclusion
Traditional theory suggests that in a
growing market wealth will be distributed efficiently. However, China’s growth has resulted in an
increase in income inequality between rural and urban workers. Over the decades, China economy has
transformed from agricultural economy to knowledge-based industrial driven
requiring more skilled workers. The structural change has led to income
inequality which suggest that China is experiencing skill-biased technological
change as many countries also experienced. To meet the skill demand, the
government has provided VET policy and institutions; however, the VET is mainly
available in the industrial area agglomerated near urban settings. Accordingly,
the government should increase the access of VET in the rural area.
