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Chronicle of a Decline Foretold

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  • Mitali Das
  • Papa M N'Diaye

Abstract

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.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 13/26.

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Length: 21
Date of creation: 29 Jan 2013
Date of revision:
Handle: RePEc:imf:imfwpa:13/26

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Related research

Keywords: Labor supply; China; Wage increases; Labor markets; Economic growth; Economic models; labor force; labor demand; unemployment; supply of labor; labor shortage; bargaining power; jobs; labor force participation; unemployment rate; labor shortages; nairu; unemployed; labor market developments; labor mobility; labor market conditions; full employment; labor force participation rates; job creation; labor costs; unemployed people; labour shortage; labor share; total labor force; labour supply; labor market segmentation; labor market tightness; number of employees; labor shares; labor participation; total employment;

References

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  1. Rod Tyers & Jane Golley, 2006. "China's Growth to 2030: Demographic Change and the Labour Supply Constraint," PGDA Working Papers 1106, Program on the Global Demography of Aging.
  2. Knight, John & Deng, Quheng & Li, Shi, 2011. "The puzzle of migrant labour shortage and rural labour surplus in China," China Economic Review, Elsevier, vol. 22(4), pages 585-600.
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Cited by:
  1. Crafts, Nicholas & O’Rourke, Kevin Hjortshøj, 2014. "Twentieth Century Growth*This research has received funding from the European Research Council under the European Union’s Seventh Framework Programme (FP7/2007-2013) / ERC grant agreement no. 249546," Handbook of Economic Growth, in: Handbook of Economic Growth, edition 1, volume 2, chapter 6, pages 263-346 Elsevier.
  2. Rickne, Johanna, 2013. "Labor market conditions and social insurance in China," China Economic Review, Elsevier, vol. 27(C), pages 52-68.

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