Human Capital In China

In this paper we estimate China's human capital stock from 1985 to 2007 based on the Jorgenson-Fraumeni lifetime income approach. An individual's human capital stock is equal to the discounted present value of all future incomes he or she can generate. In our model, human capital accumulates through formal education as well as on-the-job training. The value of human capital is assumed to be zero upon reaching the mandatory retirement ages.

China's total real human capital increased from 26.98 billion yuan in 1985 (i.e., the base year) to 118.75 billion yuan in 2007, implying an average annual growth rate of 6.78%. The annual growth rate increased from 5.11% during 1985-1994 to 7.86% during 1995-2007. Per capita real human capital increased from 28,044 yuan in 1985 to 106,462 yuan in 2007, implying an average annual growth rate of 6.25%. The annual growth rate also increased from 3.9% during 1985-1994 to 7.5% during 1995-2007. Therefore, although population growth contributed significantly to the total human capital accumulation before 1994, per capita human capital growth was primary driving force after 1995. The substantial increase in educational attainment during 1985-2007 contributed significantly to the growth in total and per capita real human capital.