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Chronicle of a Decline Foretold: Has China Reached the Lewis Turning Point?

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Author Info

  • 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; Excess labor supply; Lewis Turning Point; Population aging; Demographics;

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