NS4301 Summer Term 2015

Population/Demographics

Population I

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• “Population Debate Will Gain Prominence,” Oxford Analytica, October 25, 2011

• Debate about how many people are too many has a long history

• Confidence in humankind’s ability to feed and cloth itself has risen and fallen over the centuries

• Work of Thomas Malthus (1766-1834) has been associated with a pessimistic view of growing populations

• His main worry was with the food supply but areas of concern have expanded since to include:

• Water,

• Mineral and energy resources, as well as

• Environmental issues including effect of population on greenhouse gas emissions and hence world’s climate.

Population II• Pessimistic View• Neo-Malthusians stress that many improvements the world has

experienced have been due to increased use of:

• Fossil fuels and

• Nitrogen-based fertilizers• Problem these have serious long-term effects that are starting to

assert themselves:

• Climate change provoked by green house gas emissions

• Reduced soil fertility and

• Pollution

• Increasing populations are putting pressure on water supplies and ancient aquifers are beginning to run dry

• Prices of key minerals and food have been rising for most of the last decade

• Result: may generate political instability as food and household costs escalate 3

Population III

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• Optimistic View

• Important to distinguish between

• short term – where prices rise and resources become scarce and

• Long term within which human ingenuity responds to those changes by finding new ways of fulfilling needs and wants more easily and cheaply

• In addition not all problems of environmental degradation, resource scarcity and price rises are due to population increase

• In many situations bad politics, social injustice, corruption and conflict cause more harm

• Economic success of emerging economies in recent decades as increased demand for commodities and in the absence of an equivalent increase in production and thus their prices.

Population IV• While the Classsicals tended to look at growing

populations as a threat to prosperity, we now often view growing populations as important for growth

• As countries transition from high to low death and birth rates, the population’s age structure changes and the economically dependent-proportion declines

• This transition can create one (or more) forms of “demographic dividend”:

• Labor supply increases as a greater proportion of total populations joins the working age group (15-64 years)

• As each worker’s number of dependents falls, the worker is able to save more to finance deepening of the capital stock and to raise labor productivity

• As dependency declines, more can be invested in healthcare and education for each child raising the quality of the human capital stock

• As per capita income increases, demand increases for consumer goods.

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Population V

• Some analysts attribute the extremely fast economic growth in a number of Asian countries – Hong Kong, Singapore, and South Korea between the 1960s and 1990s to a demographic dividend

• Studies argue that a sizable portion – in some cases up to one third, of the increase in GDP per capita during those decades could be ascribed to positive impact of demographic changes.

• However unclear whether this experience is repeatable elsewhere and

• Whether in other countries similar demographic changes could actually have adverse effects

• Moreover seem to be scope for significant economic development even without such demographic changes.

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Population VI

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Population VII

• Even if a country experiences an increase in the relative size of its working age population there is no guarantee this will turn into economic development

• What happens will depend on the use that the government and private sector make of such a window of opportunity to:

• Increase the workforce participation rate – the proportion of the working age population that is productively employed; and

• Provide opportunities for the efficient investment of the expected higher levels of savings associated with a larger working age population.

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Population VIII

• Important areas of public policy that need to make use of the demographic dividend include

• Improving and making the public health system more effective

• Increasing the provision and quality of education

• Introducing economic policies that promote labor market flexibility, openness to trade and savings.

• Negative Scenario

• A reduction in the number of children can provide breathing space for countries enabling them to develop infrastructure and policies capable of yielding higher growth rates in the future

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Population IX

• Yet trying to coordinate such a combination of demographic and institutional changes may prove difficult;

• Country could find itself in a situation where hit has a high proportion of working age citizens who are not productively employed

• Might be left unprepared for an inevitable aging of its population

• Rather than a demographic dividend the country could experience problems of youths

• In these situations the unemployed or underemployed are often prone to violent behavior

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Population X

• Many countries are now more concerned with declining or slowing rates of population growth

• Demand side started with Hansen and the stagnationists in the 1930s – slowing population would require less investments – feeding back to slack demand and slow growth -- vicious circle

• Supply side view – neoclassicals 1950s – demographic dividend facilitated East Asia miracle

• Over the next 40 years Japan and Europe will see working-age populations shrink by 30 million and 37 million respectively

• China’s working age population will keep growing for 15 years or so then turn down.

• In 2050 China will have 100 million fewer workers than it does today

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Population XI

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