Labor force 'at turning point' (3)

Household reform

To offset the effect of a decreasing labor population, Cai said, ultimately, the reform of China’s permanent residency system, or hukou system, should be a priority.

Hukou means access for residents to public facilities and services, such as education, subsidized housing, employment and social security, depending on where a person is registered.

Without hukou, migrant workers tend not to stay long in cities and usually return home to rural areas in their 40s, Cai said.

"Giving them hukou at their workplace would help stabilize the nation’s labor force and attract more workers from rural areas (to cities)," he said, adding that a redistribution of labor from agriculture to other sectors will also help improve productivity and boost economic growth.

At the same time, giving migrant workers hukou would likely lead to them spending like urban residents, rather than the current situation in which they save money to send back to their hometowns, Cai said.

"A growth model driven by consumption is more sustainable than the current model, which relies intensively on exports and investment," he said.

Meanwhile, he said, China should take the opportunity to upgrade industry and technology faster, as well as eliminate sectors that use a lot of resources but produce little.

"Industrial upgrades will send a signal to workers that they need to receive additional training and education so they match market demand," Cai said. "The government should make vocational and college education more accessible for migrants."