The Effects of Rapid Population Growth on Labor Supply and Employment in Developing Countries

Abstract

This document examines the principal effects of rapid population growth on labor supply and employment in the developing countries of the world. On the supply side of labor markets the discussion focuses on 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. On the demand side attention is directed to the way in which the nature of labor markets in developing economies including government and privately induced wage distortions and rigidities conditions their labor absorption capacity. Most of the statistics analyzed were drawn from the various publications of the World Bank with some statistics from the United Nations and the International Labor Office. Countries are grouped in 2 conventional ways for purposes of the analysis: by income group and by geographic location. This review of the evidence reveals that developing countries have faced a very rapid increase in the population in the past 2 decades. Fertility and mortality patterns and developing country age structures guarantee a similar large increase in the future. Yet the experience of the past indicates that despite population increasing more than the labor force and despite inefficient dualistic labor markets (due potentially to government-induced and other imperfections) developing countries were on the whole relatively successful in improving their economic positions over the 1960-80 period. The labor markets absorbed a large 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 provide little support for either the optimistic view that rapid population growth promotes development or the pessimistic view that it necessarily hinders development. The neutralist view that population growth has had little net association with economic development seems to be the most sensible conclusion to draw from the evidence though of course economic growth per capita might have been faster under slower population growth. For the remainder of the 20th century predicted population growth can likely be accommodated provided the developing economies generate human and physical capital investments of comparable relative magnitudes to the past 2 decades.