ABSTRACT
To jump out of the low productivity trap, new policy initiatives are urgently needed to lift human capital through investment in education and appropriate on-the-job training. Seminal work by T. W. Schultz emphasizes the importance of human capital as a contributor to productivity and economic growth. As China gradually develops away from labour-intensive production to high-value-added production and services, such as information communication technology and innovation industries, the quality of human capital is of primary importance. In face of declining population and labour force, China needs to swiftly enhance its labour productivity in order to sustain economic growth. The contribution of the labour force to output growth can be decomposed into two components: the quantity of labour and the marginal product of labour. From a quantitative perspective, growth of labour force is directly related to population growth, which is in turn dependent on raising the fertility rate.
