Assessment of China’s Higher Education Enrollment Expansion Policy and Its Impact on the Labor Market ()
1. Introduction
China’s rapid economic transformation in the late 20th century quickly created a need for a more skilled workforce to shift from a labor-intensive to a knowledge-based economy. In response, the government introduced the Higher Education Enrollment Expansion Policy (HEEEP) in 1999, a significant initiative aimed at greatly increasing access to higher education and developing the human capital needed for sustained economic growth. The scale of this policy was unmatched; by 2020, annual enrollment had risen from 1.6 million students in 1999 to 11.4 million, and the share of workers with higher education increased from just 5% in 2000 to 23% in 2020 (Huang, 2020). This expansion successfully built a larger pool of educated workers, a crucial factor in China’s economic progress and a driver for better national health and development indicators (Raghupathi & Raghupathi, 2020).
Despite these quantitative achievements, the rapid and large-scale expansion caused significant inefficiencies and structural imbalances in the labor market. These imbalances are not unique to China and have been seen worldwide, often worsened by crises like the COVID-19 pandemic or geopolitical conflicts (Amare et al., 2021; Hassen & Bilali, 2022). Unemployment among recent college graduates in China rose to 6.2% in 2020, exceeding the national urban average of 5.6% (Ministry of Education of the People’s Republic of China, 2021). Additionally, underemployment—when graduates work in roles that don’t require college-level qualifications—affected an estimated 30% of the urban college-educated workforce by 2020, with sectors like retail and hospitality employing 22% of these graduates (Steffy, 2017). This increase in precarious jobs raises concerns for public health and deepens social inequalities (Gunn et al., 2025). Adding to these problems, wage growth for college-educated workers stayed flat at an average of 1.5% annually from 2010 to 2020, compared to the 4.2% annual growth for vocational-trained workers during the same period (Gustafsson & Ding, 2020). This indicates decreasing returns to higher education for many graduates, which could have long-term effects on social mobility and inequality (Sheftel et al., 2023).
This paper synthesizes empirical research to assess the HEEEP’s impact on the Chinese labor market. It aims to go beyond simply evaluating enrollment numbers to critically examine the emerging structural weaknesses. Our analysis focuses on four main objectives: 1) to assess the labor market effects of rapid higher education expansion, especially regarding supply-demand mismatches and wage trends; 2) to identify and analyze regional and sectoral disparities worsened by these mismatches, which often lead to different outcomes for various demographic groups (Montenovo et al., 2022); 3) to suggest targeted policy solutions to address the inefficiencies; and 4) to offer insights on aligning future education reforms with goals of long-term economic resilience and inclusive growth. By pursuing these objectives, this study adds to the broader discussion on managing the impacts of educational massification in developing and transitioning economies.
2. Theoretical Framework
To understand the complex labor market outcomes of China’s HEEEP, this study uses an integrated theoretical framework that combines Human Capital Theory, Signaling Theory, and Mismatch Theory. Human Capital Theory, developed by Becker and Schultz, argues that education is an investment that improves an individual’s skills and productivity, leading to higher earnings. From this perspective, the HEEEP was a large national effort to boost workforce productivity and promote economic growth. The policy was expected to generate significant benefits for both individuals and the country, including increased income and broader well-being, such as better health outcomes (Raghupathi & Raghupathi, 2020; Zhang et al., 2022). However, the fact that many graduates have experienced wage stagnation indicates that the returns on this investment have been lower than expected, highlighting inefficiencies in how this newly developed human capital is used in the labor market.
Signaling Theory, developed by Spence, provides an additional perspective. It indicates that education may not mainly boost productivity but instead functions as a signal to employers about a candidate’s natural abilities, such as intelligence and diligence. In a labor market with imperfect information, a university degree acts as a credential that sorts individuals. Before the HEEEP, a degree was a rare and strong signal. The massification of higher education caused “credential inflation”, which reduced the value of a standard bachelor’s degree as a signal. As millions of graduates entered the market, employers started demanding higher-level degrees or credentials from more prestigious schools to distinguish candidates, leading to underemployment for those with degrees from less elite universities. This process can also be affected by automatic biases and stereotypes that hiring managers hold, further complicating the signaling value of credentials (Agerström & Rooth, 2011).
Mismatch Theory offers a way to examine the disconnect between the skills provided by the education system and those needed in the labor market. This framework highlights different types of mismatches: skill mismatch (graduates’ skills don’t match job requirements), qualification mismatch (overeducation or undereducation), and geographical mismatch (graduates aren’t located where jobs are). The HEEEP, by focusing on rapid quantitative growth rather than aligning with industry needs, created a major skill mismatch. Many university curricula remained too theoretical and disconnected from the practical needs of emerging high-tech and service industries, causing a surplus of graduates in some fields and shortages in others. The effects of curriculum design on the labor market are significant, as certain educational content is linked to better outcomes after college (Han et al., 2023). The fast pace of technological change, like artificial intelligence, adds to this issue by constantly shifting the demand for skills, making curriculum alignment an ongoing challenge (Glebova et al., 2024). By combining these three theories, this study can comprehensively evaluate the results of the HEEEP. Human Capital Theory explains the policy’s reasoning, Signaling Theory clarifies the devaluation of credentials and rising competition, and Mismatch Theory identifies the structural causes of inefficiency in the labor market.
3. Methods
This study employs a mixed-methods approach, combining quantitative data from official statistical sources with qualitative insights from academic literature to comprehensively evaluate the labor market impact of China’s Higher Education Expansion and Employment Promotion (HEEEP) policy, initiated in 1999. Quantitative analysis uses nationally representative datasets, including the China Labor Force Survey (CLFS, 2000-2020) for employment trends among those with tertiary education; the China Household Income Project (CHIP, 2009 and 2018) to examine wage differences between educational groups; National Bureau of Statistics (NBS) yearbooks for overall education and economic indicators such as enrollment rates, GDP, and industrial output; and Ministry of Education (MOE) reports on graduate employment rates. Focusing on the urban labor force aged 22-60, the study compares cohorts entering the job market before and after 1999 to assess long-term effects.
The methodology comprises three analytical phases: first, descriptive statistical analysis identifies baseline trends in higher education enrollment, unemployment, underemployment, and wage premiums; second, comparative analysis evaluates labor market outcomes for workers with tertiary education against those with vocational or upper-secondary qualifications, while also considering regional disparities (coastal versus inland provinces) and sectoral imbalances (such as industry distribution of graduates); third, a systematic review of peer-reviewed studies in economics, sociology, and education contextualizes findings, clarifies mechanisms like curriculum design and employer preferences, and informs policy recommendations. By integrating data from these diverse sources and approaches, the study aims to provide a detailed, evidence-based assessment of the complex effects of China’s higher education expansion on labor market dynamics, including vulnerabilities across different populations and similarities to other major economic shocks.
4. Key Findings
4.1. Supply-Demand Mismatch
The rapid increase in tertiary-educated workers, a direct outcome of the HEEEP, has created a significant supply-demand imbalance in the Chinese labor market (Keely & Tran, 1989). While the policy was intended to fuel economic development and enhance social mobility, it inadvertently fostered widespread skill mismatches, particularly in high-growth industries like information technology, advanced manufacturing, and green energy. The nature of college curricula plays a crucial role in these outcomes, as interdisciplinary education is associated with increased earnings, suggesting that knowledge integration matters for labor market success (Han et al., 2023).
Empirical studies indicate that a substantial portion of graduates—estimated at around 40% face difficulties securing employment that aligns with their academic qualifications (Dore & Oxenham, 2024). This mismatch is primarily attributed to a systemic focus within universities on theoretical academic degrees at the expense of practical, technical, and vocational training. This trend is not unique to China; other research has shown a declining interest among PhD students in traditional academic careers, suggesting a broader disconnect between higher education pathways and student career goals (Roach & Sauermann, 2017). Consequently, graduates often lack the hands-on expertise and industry-specific skills employers demand in dynamic sectors. High-tech firms consistently report severe shortages of specialized talent, even as a surplus of university graduates with generalist degrees floods the market (Latukha, 2016). The labor market shows a strong preference for engineers, software developers, and advanced manufacturing specialists. Yet, many graduates hold business, humanities, and social sciences degrees, which are not directly applicable to these high-demand roles. This structural disconnect forces employers to invest heavily in on-the-job training or recruit from a limited pool of qualified candidates. At the same time, many graduates experience underemployment or prolonged periods of job searching.
4.2. Wage Stagnation and Underemployment
A critical consequence of the graduate oversupply has been the stagnation of wages and a rise in underemployment. As shown in Table 1, tertiary-educated workers saw their real wages grow by only 1.5% annually between 2010 and 2020, significantly lagging behind the 4.2% annual growth for workers with vocational training (Yang et al., 2020). This trend indicates diminishing marginal returns to a university degree for a large population segment. The influx of graduates created intense competition for a limited number of white-collar jobs, giving employers greater leverage to suppress entry-level salaries.
Table 1. Wage stagnation and underemployment indicators (2010-2020).
Indicator |
Value |
Source |
Key Insights |
Annual Wage Growth (Tertiary) |
1.5% |
China Household Income Project |
Oversupply of graduates suppressed wage growth, indicating diminishing returns to education. |
Annual Wage Growth(Vocational) |
4.2% |
China Household Income Project |
High demand for skilled technical workers drives up wages, reflecting labor shortages. |
Graduate Employment in the Public Sector |
35% |
ChinaEmployer-Employee Survey |
Public sector acts as an employer of last resort, often leading to underutilization of skills. |
At the same time, underemployment has become a widespread problem, a form of insecure employment with serious public health effects (Gunn et al., 2025). As shown in Table 2, 30% of urban tertiary workers were considered underemployed in 2020, working in jobs that did not match their education level (Gu et al., 2020). The public sector has grown as a major employer for this group, hiring 35% of graduates, often in administrative roles with limited opportunities for advancement (Gu et al., 2020). This inefficient use of human capital has wide socioeconomic impacts. For graduates, financial instability and unmet career goals can cause dissatisfaction and prevent investments in housing, healthcare, or further education. For the economy, it means a big loss of potential productivity and innovation, as the advanced skills of millions of people are underused. This problem can be especially severe for women, who often face additional vulnerabilities in the labor market during economic downturns (Sarker, 2020).
Table 2. Unemployment and underemployment of tertiary-educated workers (2020).
Indicator |
Rate |
Source |
Key Insights |
Unemployment Rate |
6.2% |
Ministry of Education (2021) |
Higher than the national average (5.6%), reflecting an oversupply of graduates in fields with limited demand. |
Underemployment Rate |
30% |
China Labor Force Survey (2020) |
Indicates a structural mismatch between graduate qualifications and available job complexity. |
4.3. Regional Disparities
A major result of the oversupply of graduates has been stagnant wages and increased underemployment. As shown in Table 1, workers with tertiary education saw their real wages increase by only 1.5% annually between 2010 and 2020, which is significantly slower than the 4.2% annual growth for workers with vocational training (Wang & Jv, 2023). This trend suggests diminishing returns to a university degree for a large portion of the population. The surge of graduates created fierce competition for a limited number of white-collar jobs, giving employers more power to keep entry-level salaries low.
Simultaneously, underemployment has become a widespread issue, a form of insecure employment that has significant public health effects (Gunn et al., 2025). As shown in Table 2, 30% of urban tertiary workers were considered underemployed in 2020, working in jobs that did not match their level of education (Tiven, 2024). The public sector has become a major employer for this group, hiring 35% of graduates, often in administrative roles with limited career growth (Steffy, 2017). This inefficient use of human capital has broad socioeconomic impacts. For graduates, financial insecurity and unmet career goals can cause dissatisfaction and prevent them from investing in housing, healthcare, or further education. For the economy, it means a large loss of potential productivity and innovation, since the advanced skills of millions are not fully used. This situation can be especially serious for women, who often face additional vulnerabilities in the labor market during economic downturns (Sarker, 2020).
4.4. Decline in Vocational Training
A significant unintended result of the HEEEP was a sharp decline in the prestige and enrollment of vocational education and training (VET). As societal and family aspirations shifted toward university degrees, VET pathways became stigmatized as a secondary or inferior choice. As shown in Table 3, enrollment in vocational schools dropped by 35% between 2000 and 2020, decreasing from 5.2 million to 3.4 million students.
Table 3. Vocational training decline and skilled labor deficit (2000-2020).
Indicator |
2000 |
2020 |
Change |
Key Insights |
Vocational Enrollment |
5.2 million |
3.4 million |
−35% |
Shift in educational preferences
towards university degrees,
marginalizing VET. |
Annual Skilled Labor Deficit |
N/A |
8 million |
N/A |
Worsening shortages of technicians and tradespeople are hindering industrial modernization. |
This decline has led to a severe shortage of skilled technicians and tradespeople, resulting in an estimated annual deficit of 8 million high-skilled workers (Steffy, 2017). Industries vital to China’s “Made in China 2025” initiative, such as advanced manufacturing, robotics, and construction, continue to face ongoing labor shortages that hinder productivity and innovation. The shortage of trained electricians, precision machinists, and IT support specialists creates bottlenecks in production processes and increases operational costs for businesses. This erosion of the skilled technical workforce is a significant structural weakness for the Chinese economy, undermining its goals for industrial upgrading and technological independence. The challenge involves not only the numbers but also the need to adapt training programs to new technological paradigms, like integrating artificial intelligence into various industries (Glebova et al., 2024).
5. Discussion and Policy Recommendations
The findings show that, while the HEEEP achieved its main goal of increasing access to higher education, it also caused significant structural tensions in the labor market. The resulting supply-demand mismatches, wage stagnation, regional disparities, and decline in vocational training present major challenges to China’s long-term economic stability and social cohesion. Addressing these problems requires a shift from simply expanding numerical access to focusing on quality and demand-driven human capital development. It’s important to note that the observed labor market effects are not solely due to the HEEEP. Other reforms during this time, such as the gradual easing of the hukou (household registration) system and major industrial upgrading policies, also strongly influenced employment patterns and wage structures. Still, targeted educational reforms are essential for addressing the specific inefficiencies identified in this study.
5.1. Aligning Education with Labor Market Demands
The most urgent need is to close the gap between university curricula and the changing needs of the modern economy. Higher education institutions must go beyond traditional, theory-focused programs and build stronger connections with industry. This can be achieved by creating industry advisory boards to help shape curriculum development, especially in fast-growing fields like artificial intelligence, biotechnology, and renewable energy. Universities should partner with leading tech and energy companies to develop specialized courses, micro-credentials, and degree programs that directly match current and future skill needs, as the content of education directly impacts graduates’ earnings (Han et al., 2023). Additionally, establishing national frameworks for certifying technical and advanced skills would ensure that graduates have verified, portable competencies, improving their employability and workforce readiness.
5.2. Revitalizing Vocational Training
Reversing the decline of vocational education is essential for solving China’s skilled labor shortage. This calls for a multi-faceted approach to improve VET’s quality and public perception (Jochelson et al., 1991). The government should work with industry leaders to modernize VET institutions, updating curricula and equipment to match current industry standards (Durán, 2021). Promoting specialized programs in high-demand fields like engineering, IT, and advanced manufacturing will ensure graduates gain practical, job-ready skills. Financial incentives, such as subsidies, tax breaks, and scholarships for students in sectors with severe skill shortages, could significantly increase enrollment; however, the impact of these incentives can depend on other labor market factors (Leoni, 2021). Public awareness campaigns are also necessary to fight the social stigma of vocational careers and present them as respectable and profitable options.
5.3. Addressing Regional Disparities
To mitigate the brain drain from inland regions and promote balanced development, policies must focus on making these areas more attractive to skilled graduates. This includes providing strong financial incentives for businesses that establish or expand operations in inland provinces, such as tax reductions and subsidies. Investing in high-speed digital infrastructure is equally crucial, as it enables remote work and connects inland economies to national and global markets. The ability to perform work remotely was a key factor in mitigating job losses during the COVID-19 pandemic and can be leveraged to reduce geographic employment gaps (Montenovo et al., 2022). Furthermore, establishing “centers of excellence” and research hubs at inland universities, supported by scholarships and competitive funding, can help attract and retain top talent locally. These centers can become catalysts for innovation, allowing inland regions to develop competitive advantages in niche industries.
5.4. Strengthening Employer Engagement
Fostering deeper collaboration between employers and educational institutions is crucial for closing skill gaps. Policymakers should actively promote and support internships, apprenticeships, and co-op programs jointly managed by businesses and universities (Flippen & Parrado, 2015). These initiatives give students valuable industry experience and prepare them to enter the workforce after graduation. Labor market programs like apprenticeships and other youth initiatives have effectively addressed precarious employment, which aligns with a study by Gunn et al. (2025). For example, Germany’s dual vocational education and training (VET) system, which combines classroom learning with company-based apprenticeships, successfully creates a highly skilled workforce that meets industry demands. Additionally, creating industry-led guidelines for competitive wages and benefits in high-growth sectors can help attract and keep talent, reduce turnover, and boost job satisfaction.
5.5. Integrating Sustainability into Educational Reform
As China advances its goals for carbon neutrality and sustainable development, the education system must prepare a workforce capable of leading this green transition (Stetz & Beehr, 2000). This involves investing in new academic and vocational programs focused on renewable energy, environmental engineering, and sustainable resource management. The need for more sustainable and resilient systems has been highlighted by recent global crises, underscoring the urgency of this transition (Hassen & Bilali, 2022). These programs should emphasize practical training in solar panel installation, energy efficiency auditing, and circular economy principles. By proactively training professionals for green industries, China can address emerging skill shortages and build the human capital needed to reach its ambitious environmental targets.
6. Conclusion
China’s Higher Education Enrollment Expansion Policy was a significant effort that successfully increased the educational level of its population and grew its pool of qualified workers. However, the speed and scale of this expansion have created major structural issues in the labor market, including widespread skill mismatches (Han et al., 2023), graduate unemployment and underemployment (Gunn et al., 2025), growing regional disparities (Montenovo et al., 2022), and the decline of the vocational training sector. The evidence gathered in this paper shows that the initial emphasis on quantitative growth has come at the expense of aligning with economic needs.
Addressing these complex issues requires a paradigm shift in educational policy. The focus must shift from simply producing more graduates to developing the right talent. This calls for a coordinated set of reforms emphasizing curriculum updates, the revitalization of vocational training, policies for fair regional development, and the integration of sustainability-focused skills. Policymakers, educators, and industry leaders need to work together to build an adaptive and responsive human capital development system. By implementing these strategies, China can better align educational growth with labor market needs, thereby turning its demographic dividend into a sustainable talent dividend that supports long-term economic resilience and inclusive prosperity.