Saturday, August 24, 2013

The demographic imperative: China's labor force has peaked

A fascinating look at China's demographic cliff, which is substantially more challenging than even in most rich countries. China will be the first large country to face a rapidly aging population without a majority having reached the middle class. Put differently, its population is aging more quickly than its economy is growing, which is never good.

Among other factoids, China's labor force peaked three years earlier than forecast, and is at the beginning of a long decline. Not only will that make China a much less interesting place to move labor-intensive manufacturing (it already being less interesting for energy-intensive manufacturing), but one is compelled to wonder whether it will be quite as large a customer as many were originally hoping.

Fortunately, there is always India.


  1. All of the developed world is facing this demographic cliff (and the third world's population growth seems to be flattening--are we an aging species?), and the US and Europe also face this with no serious economic growth, albeit for differing reasons.

    Another thing of interest to me is that of all of the nations in this demographic strait, only the US has (until very recently) been able to ignore this particular cliff due to net positive immigration.

    Withal, though, the downside of our greater economic and political development is the threat of a greater collapse. Even with net positive immigration, demographics mean we cannot, for instance, continue to support our social safety nets (vis., social security and medicaid/care) as they currently exist.

    Eric Hines

  2. Eric, I have long wondered whether welfare state policies in fact drive lower fertility and thereby their own destruction. The effect of welfare state policies on fertility would be a fascinating social science exercise, but I suspect -- perhaps it is the cynic in me -- that few people in social science would even think of the question, much less be open-minded about their findings.

  3. It's certainly a worthy question, but the evidence I've seen (sketchy and scattered, to be sure) indicates that drops in national fertility rates have tended to follow increases in national prosperity and precede increases of welfare programs. It's not necessarily that welfare programs have no effect; they may, though, only potentiate a trend in progress. After all, widespread welfare, and welfare that can even pretend to effectiveness, require a certain threshold of prosperity.

    Probably need more and better data on both of those ideas. Just not funded by government in either case.

    Eric Hines


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