November 11, 2015
News reports continue to obsess over the idea that China and other countries might run out of people if they don’t increase their birth rates. The implication is that countries won’t have enough people to do the necessary work to support a larger population of retirees. (It’s worth noting that many of these same people worry about robots taking all the jobs. If it’s not obvious that these concerns are 180 degrees opposite then think about it until it is.) Anyhow, the NYT had an article that referred to the expected population gains from China ending its one-child policy which gives an idea of the economic importance of this measure.
The piece told readers:
“Mr. Wang [a vice minister of the National Health and Planning Commission] said that the relaxation of rules governing family size would bring more than 30 million new entrants into the labor force by 2050, and that the proportion of older people in China’s total population would be reduced by about 2 percentage points.”
To get some rough idea of the impact of this increase in the size of the working age population, if the ratio of workers to retirees would have been 2.0 to 1 in the baseline, it would be roughly 2.2 to 1 as a result of the increased birthrate. If a retiree’s living standard is equal to 80 percent of a worker’s living standard, this would imply an increase in the living standard of workers just over 3 percent by 2050 as a result of higher ratio of workers to retirees. This is equivalent to less than six months of growth at China’s current pace.
Furthermore, the actual improvement in living standards as a result of the higher birth rate would be considerably less than 3.0 percent, since there will be more dependent children to support in the higher population growth scenario. In addition, the larger population will place greater demands on the infrastructure and the environment. On net, the more rapid population growth could certainly have a negative impact on living standards in 2050, especially if we consider distribution (a greater supply of labor could mean lower wages). However, even before factoring in the negatives, the potential benefits of a larger ratio of workers to retirees are swamped by the impact of economic growth.
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