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Demographic time bomb

At LIRNEasia, we do not focus solely on ICTs. For some time, we’ve been looking at demographic structure as a factor. Both the recent Afghanistan and Bhutan Sector Performance Reviews contained sections on demography.

The demographic time bomb, the increase in the aged population before a country has had time to get rich and establish a safety net is less written about than the good stuff, but is perhaps the more important. Here is a senior official from China talking about it:

Since 2004 the shrinking supply of — and increasing demand for — labour has led to wide labour shortage and rapid inflation of wages. This fits the pattern Arthur Lewis described in the 1950s, so 2004 is now widely recognised as the year of the Lewis turning point in China.

Labour shortage is a recurrent phenomenon, and this has caused the pattern and trend of Chinese economic growth to change. In the years when China could reap the demographic dividend prior to the turning point, the decline in the dependence ratio (the ratio of dependent to working age population) ensured adequate supply of labour and a high savings rate. At the same time, labour migration from agriculture to industry and the service sectors improved efficiency in resourRNEasiuaces reallocation, a significant source of productivity growth. Following the turning point, access to new labour supply is becoming limited, return on capital is diminishing, and the improvement of productivity is slowing down. As a result, the force driving economic growth is weakening.

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