The Population Problem

population growth Since beginning of common era (AD 1), population has grown to 6 billion At the current 2% growth rate, next 5 billion could take only 35 years! 98% of population growth between 1998 and 2025 expected to occur in poorer countries

population and development as long as each person contributes something to the economy (positive MP), pop and econ growth positively correlated but, if MP<AP, declining welfare of the average citizen

output equation O = LX O: output L: number of workers X: output per worker O/P = (L/P)X…output per capita P: population

output per capita output per capita determined by share of population in labor force (L/P) output per worker (X) whatever affects these 2 factors is population growth’s effect on development

factor 1: share of population in labor force changes in age distribution rapid growth means higher percentage of young people large supply of people too young to work slow growth means high % of older people retirement effect high pop growth retards per capita economic growth by decreasing % of pop in labor force

age structures

factor 2: output per worker most common productivity enhancer: accumulation of capital is there a connection between pop growth and cap accumulation? 2 connections: more savings leads to more capital fast growing pop save less law of diminishing marginal productivity with fixed factor (land), adding more labor diminishes productivity

could pop growth enhance output per capita? technological progress / economies of scale

population / environment connection trees cut for fuel for an expanding population or to clear land for agriculture marginal lands being brought into production migration to river deltas in search of fertile soil: vulnerable to storm surges

population / environment connection debate Malthusian hypothesis (positive feedback) more people, less resources, must travel further for fuel, have more children to help, intensifying scarcity problems Boserup’s induced innovation (negative feedback) increased pop triggers more demand for agriculture, incentives emerge for innovation, results in more intensive, sustainable practices

what about effect of development on population? theory of demographic transition: as nations develop they eventually reach a point where birthrates fall stage 1: prior to industrialization, birthrates / death rates stable stage 2: after industrialization, lower death rates (same birthrates) stage 3: falling birthrates

demographic transition

economics of pop control will parents make efficient childbearing decisions? sources of market failure congestion externalities low key commodity prices artificially lower costs of children food education…school taxes same for 2 vs. 6 children

microeconomic theory of fertility children are “consumer durables” MB of children is downward sloping ceteris parabis, as children become more expensive, demand for them will diminish example MB1=MC1, optimal children Q1 if MB shifts down or MC up, less is optimal what would cause these to shift?

changing desired family size decreased benefits shift from agriculture to industry less demand for children as social security decrease in infant mortality increased costs increased opportunity cost of mother’s time (more educational and labor mkt opportunities) scarcity / cost of housing cost of education

marginal benefits and costs of children

policy China: subsidize 1-child families, tax additional children extreme, strong resistance, unintended consequences enhancing status of women providing alternative sources of old-age security access to credit (microfinance)