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China is on the eve of a demographic shift that will have profound consequences on its economic and social landscape. Within a few years the working age population will reach a historical peak, and then begin a precipitous decline. This fact, along with anecdotes of rapidly rising migrant wages and episodic labor shortages, has raised questions about whether China is poised to cross the Lewis Turning Point, a point at which it would move from a vast supply of low-cost workers to a labor shortage economy. Crossing this threshold will have far-reaching implications for both China and the rest of the world. This paper empirically assesses when the transition to a labor shortage economy is likely to occur. Our central result is that on current trends, the Lewis Turning Point will emerge between 2020 and 2025. Alternative scenarios—with higher fertility, greater labor participation rates, financial reform or higher productivity—may peripherally delay or accelerate the onset of the turning point, but demographics will be the dominant force driving the depletion of surplus labor.
Demography --- Economic development --- Historical demography --- Social sciences --- Population --- Vital statistics --- Labor supply --- Population aging --- Aging of population --- Aging population --- Aging society --- Demographic aging --- Graying (Demography) --- Greying (Demography) --- Age distribution (Demography) --- China --- Population. --- E-books --- Labor --- Macroeconomics --- Production and Operations Management --- Methodological Issues: General --- Demographic Trends, Macroeconomic Effects, and Forecasts --- Geographic Labor Mobility --- Immigrant Workers --- Formal and Informal Sectors --- Shadow Economy --- Institutional Arrangements --- Demand and Supply of Labor: General --- Wages, Compensation, and Labor Costs: General --- Labor Demand --- Labor Economics: General --- Production --- Cost --- Capital and Total Factor Productivity --- Capacity --- Labour --- income economics --- Labor markets --- Wages --- Labor demand --- Total factor productivity --- Labor market --- Labor economics --- Industrial productivity --- China, People's Republic of
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Traditionally, shocks to total factor productivity (TFP) are considered exogenous and the employment response depends on their effect on aggregate demand. We raise the possibility that in response to labor supply shocks firms adjust efficiency, rendering TFP endogenous to firms’ production decisions. We present robust cross-country evidence of a strong negative correlation between growth in TFP and labor inputs over the medium to long run. In addition, when using instruments to capture changes in hours worked that are independent of TFP shocks, we find that cross-country increases in labor input cause reductions in TFP growth. These results have important policy implications, including that low productivity growth in some countries may partly be a side effect of strong labor market performance. By the same token, countries facing a declining workforce, say, because of aging, may see accelerating TFP as firms find better ways of employing workers.
Industrial productivity --- Labor supply --- Labor force --- Labor force participation --- Labor pool --- Work force --- Workforce --- Labor market --- Human capital --- Labor mobility --- Manpower --- Manpower policy --- Productivity, Industrial --- TFP (Total factor productivity) --- Total factor productivity --- Industrial efficiency --- Production (Economic theory) --- Econometric models. --- Macroeconomics --- Production and Operations Management --- Demography --- Production --- Cost --- Capital and Total Factor Productivity --- Capacity --- Human Capital --- Skills --- Occupational Choice --- Labor Productivity --- Labor Economics: General --- Macroeconomics: Production --- Demographic Trends, Macroeconomic Effects, and Forecasts --- Technological Change: Choices and Consequences --- Diffusion Processes --- Macroeconomics: Consumption, Saving, Production, Employment, and Investment: General (includes Measurement and Data) --- Labor Demand --- Labour --- income economics --- Population & migration geography --- Labor productivity --- Labor --- Productivity --- Population growth --- Population and demographics --- Labor economics --- Population --- United States
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Abstract Empirical evidence is mounting that, in advanced economies, changes in monetary policy have a more benign impact on the economy—given better anchored inflation expectations and inflation being less responsive to variation in unemployment—compared to the past. We examine another aspect that could explain this empirical finding, namely the demographic shift to an older society. The paper first clarifies potential transmission channels that could explain why monetary policy effectiveness may moderate in graying societies. It then uses Bayesian estimation techniques for the U.S., Canada, Japan, U.K., and Germany to confirm a weakening of monetary policy effectiveness over time with regards to unemployment and inflation. After proving the existence of a panel co-integration relationship between ageing and a weakening of monetary policy, the study uses dynamic panel OLS techniques to attribute this weakening of monetary policy effectiveness to demographic changes. The paper concludes with policy implications.
Economic policy. --- Monetary policy --- Monetary management --- Economic policy --- Currency boards --- Money supply --- Economic nationalism --- Economic planning --- National planning --- State planning --- Economics --- Planning --- National security --- Social policy --- Inflation --- Labor --- Money and Monetary Policy --- Demography --- Central Banks and Their Policies --- Demographic Trends, Macroeconomic Effects, and Forecasts --- Price Level --- Deflation --- Economics of the Elderly --- Economics of the Handicapped --- Non-labor Market Discrimination --- Unemployment: Models, Duration, Incidence, and Job Search --- Demographic Economics: General --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Population & demography --- Macroeconomics --- Labour --- income economics --- Monetary economics --- Aging --- Unemployment --- Population and demographics --- Credit --- Prices --- Money --- Population aging --- Population --- Germany
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In coming decades, China will undergo a notable demographic transformation, with its old-age dependency ratio doubling to 24 percent by 2030 and rising even more precipitously thereafter. This paper uses the permanent income hypothesis to reassess national savings behavior, with greater prominence and more careful consideration given to the role played by changing demography. We use a forward-looking and dynamic approach that considers the entire population distribution. We find that this not only holds up well empirically but may also be superior to the static dependency ratios typically employed in the literature. Going further, we simulate global savings behavior based on our framework and find that China’s demographics should have induced a negative current account in the 2000s and a positive one in the 2010s given the rising share of prime savers, only turning negative around 2045. The opposite is true for the United States and Western Europe. The observed divergence in current account outcomes from the simulated path appears to have been partly policy induced. Over the next couple of decades, individual countries’ convergence toward the simulated savings pattern will be influenced by their past divergences and future policy choices. Other implications arising from China’s demography, including the growth model, the pension system, the labor market, and the public finances are also briefly reviewed.
Demography --- Historical demography --- Social sciences --- Population --- Vital statistics --- China --- Cina --- Kinë --- Cathay --- Chinese National Government --- Chung-kuo kuo min cheng fu --- Republic of China (1912-1949) --- Kuo min cheng fu (China : 1912-1949) --- Chung-hua min kuo (1912-1949) --- Kina (China) --- National Government (1912-1949) --- China (Republic : 1912-1949) --- People's Republic of China --- Chinese People's Republic --- Chung-hua jen min kung ho kuo --- Central People's Government of Communist China --- Chung yang jen min cheng fu --- Chung-hua chung yang jen min kung ho kuo --- Central Government of the People's Republic of China --- Zhonghua Renmin Gongheguo --- Zhong hua ren min gong he guo --- Kitaĭskai︠a︡ Narodnai︠a︡ Respublika --- Činská lidová republika --- RRT --- Republik Rakjat Tiongkok --- KNR --- Kytaĭsʹka Narodna Respublika --- Jumhūriyat al-Ṣīn al-Shaʻbīyah --- RRC --- Kitaĭ --- Kínai Népköztársaság --- Chūka Jinmin Kyōwakoku --- Erets Sin --- Sin --- Sāthāranarat Prachāchon Čhīn --- P.R. China --- PR China --- PRC --- P.R.C. --- Chung-kuo --- Zhongguo --- Zhonghuaminguo (1912-1949) --- Zhong guo --- Chine --- République Populaire de Chine --- República Popular China --- Catay --- VR China --- VRChina --- 中國 --- 中国 --- 中华人民共和国 --- Jhongguó --- Bu̇gu̇de Nayiramdaxu Dundadu Arad Ulus --- Bu̇gu̇de Nayiramdaqu Dumdadu Arad Ulus --- Bu̇gd Naĭramdakh Dundad Ard Uls --- BNKhAU --- БНХАУ --- Khi︠a︡tad --- Kitad --- Dumdadu Ulus --- Dumdad Uls --- Думдад Улс --- Kitajska --- China (Republic : 1949- ) --- Macroeconomics --- Public Finance --- Macroeconomics: Consumption --- Saving --- Wealth --- Forecasting and Simulation: Models and Applications --- Current Account Adjustment --- Short-term Capital Movements --- Demographic Trends, Macroeconomic Effects, and Forecasts --- Aggregate Factor Income Distribution --- Demographic Economics: General --- Economics of the Elderly --- Economics of the Handicapped --- Non-labor Market Discrimination --- Social Security and Public Pensions --- Population & demography --- Pensions --- Income --- Population and demographics --- Consumption --- Aging --- Pension spending --- National accounts --- Expenditure --- Economics --- Population aging --- China, People's Republic of
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