112 THE CHANGING WEALTH OF NATIONS
capita human capital is nearly 78 percent of male per capita human capital. The gender gap appears to have widened over time, as per capita female human capital was 87 percent of male human capital in 1985. Most of the gender gap in total human capital can be attributed to differences in the size of the working population, returns to schooling and work experience, and gender differences in mandatory retirement age. (Retirement age is 55 for females but 60 for males under Chinese labor law; thus, men have an extra five years in which to generate income, increasing their human capital.) Although total urban human capital was lower than rural human capital in 1985, this gap reflects the very small urban population at that time. On a per capita basis, urban human capital was greater than rural, a gap that has decreased only slightly since then. The advantage of urban per capita human capital combined with the large migration from rural to urban areas shifted total human capital to urban areas by 2007.
Comparison with World Bank Estimates of Human Capital In constructing global wealth accounts, the World Bank must use data readily available for all countries; often the same or slightly modified parameters are applied to many countries because of a lack of country-specific information. Naturally, when a country applies wealth accounting, using country-specific data instead of global parameters, the results may differ from the World Bank estimates. The estimated value of human capital in China reported in table 6.1, $17,251 billion in 2005, is 44 percent higher than the World Bank estimate of $12,007 billion.3 There is a fundamental difference between the two approaches to measuring human capital: the World Bank uses the residual approach, while Li and colleagues use the J-F lifetime earning approach. But these different approaches need not produce significantly different results if consistent assumptions are made in both cases. Norway constructed human capital accounts using both approaches and found them to be very similar (Graeker 2008). Why does the estimated value of human capital from the China case study differ from the World Bank estimate? The difference is explained by assumptions about a key parameter, the growth of future earnings—that is, the return to human capital.4 The case study authors based their assumptions on an analysis of growth in earnings over the past 30 years. Li et al. (2009) found that the average annual growth rate of real earnings was 4.1 percent in rural areas and 6.0 percent in urban areas and predicted that these growth rates for human capital will continue in the future. In the World Bank wealth accounts, the growth rate is 4 percent in all countries. Since most of China’s human capital is in urban areas, the higher growth rate assumed in the Li case study will result in much higher human capital than the estimate in the World Bank wealth accounts. The human