China is losing its edge in the worldwide labor market as it will suffer a shortage of laborers due to the family planning policy, a think-tank said Wednesday in a report.

China needs to put more emphasis on education, both in cities and rural areas, to cope with its rising labor challenges, the report said.

The move to improve China's global labor competitiveness is urgent because the country is losing its edge in the worldwide labor market, with fewer workers in the labor pool.

Also, the country will continue to upgrade its manufacturing-oriented economy, requiring more skilled and educated workers, according to the report.

"China is gradually losing its labor surplus, which has created the country's success story in the past 30 years," said Wang Dewen, professor of the Institute of Population and Labor Economics, of Chinese Academy of Social Sciences, the publisher of the yearly report.

"But now it needs a second labor advantage," he said. "And that is the improvement of labor skills and their level of education," Wang said.

The average student in the countryside attends school only 6.8 years, despite the country's mandate for a nine-year compulsory education.

The report found that a rural resident who finishes senior high school will have a higher productivity rate - 21.1 percent - compared to 8.8 percent for those who only finish lower levels of education.

In the city, the government should encourage more residents to receive more education after high school, said the report. Those with further education earn at least 29 percent more.

The current average time for schooling is 9.5 years.

China's working-age population has been growing slowly, with rural surplus labor down to about 20 million from 150 million in recent years.

"To achieve economic competitiveness the country now has to depend on educational development," Wang said.

The report notes that in the manufacturing sector, one more year of education increases productivity by 17 percent.

The manufacturing-oriented economy, supported by a large number of low-skilled labor at relative lower training cost is expected to upgrade to high value-added industries that demand highly-skilled workers who have more education.

To maximize the efficiency of the limited education resources, including teachers, schools and budgets, the government needs to increase its public spending on education, Wang said.

Public investment in education in China is only 2.8 percent of the GDP. OECD countries, public investment accounts 5 percent, according to Education at a Glance, OECD 2008.

(China Daily September 10, 2009)