Population Growth, Labor Supply, and Employment in Developing Countries

Abstract

This chapter examines the nature and magnitude of the principal effects of population growth on labor supply and employment in the worlds developing economies. This is accomplished primarily through the analysis of the effect of population growth on the operation and evolution of developing country labor markets. Regarding market supply the chapter discusses key features of the interrelations between population growth and the labor force. These include the lags between population growth and labor force participation; the independent effects on labor supply of accelerated population growth due to changes in fertility mortality and migration; patterns and trends in labor force participation rates; and gender differences in labor supply behavior. In terms of the markets demand side the nature of labor markets in developing countries is described and an attempt is made to identify the key factors that condition their labor absorption capacity. The evidence shows that developing countries have experienced an enormous population increase in the past 20 years and fertility and mortality patterns assure a similar large population increase in the future. Despite population increasing more than the labor force and despite inefficient dualistic labor markets due potentially to government-induced and other imperfections in the past developing countries were relatively successful in improving their economic positions over the period. The labor markets absorbed a huge population increase with per worker incomes rising and shifts occurring in the labor force distribution toward more productive sectors of the economy. Overall the experiences of the 1960-80 period tend to be more supportive of an optimistic than a pessimistic view of the ability of developing economies to adjust to population growth. This does not mean that developing countries will be able to accomplish this in the next 2 decades. The projected population and labor force growth rates in Table 14 show 2 advantages compared to the 1960-80 period: rates of population growth will be smaller than in the earlier periods i.e. for all low-income developing countries the rates of growth fall from 2-3% to a projected 1.7%; and in sharp contrast to the earlier period the labor force will increase more rapidly than population in all types of economies. On the negative side are the absolute magnitudes of the increases. From 1960-82 labor supply in less developed countries grew by 173 million workers; it will increase by 255 million workers from 1980-2000. In absolute magnitudes this growth will place great demands on both public and private world capital markets and thus on world savings behavior. To the extent that less developed countries depend on capital flow from more developed nations they will require greater per capita investments from those countries.