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

January 29, 2013

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Mitali Das, and Papa M N'Diaye. Chronicle of a Decline Foretold: Has China Reached the Lewis Turning Point?, (USA: International Monetary Fund, 2013) accessed December 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Labor, Labor demand, Labor markets, Labor supply, Production, Total factor productivity, Wages

Keywords: Demand condition, Demographics, Excess labor supply, Excess supply of labor, Fertility rate, Global, Growth model, Growth rate, Labor demand, Labor market, Labor market development, Labor market tightness, Labor markets, Labor shortage economy, Labor supply, Lewis Turning Point, Population aging, Surplus labor, TFP contribution, Total factor productivity, Unemployment results from labor market friction, Wages, WP

Publication Details

Pages:

21
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2013/026
Stock No:

WPIEA2013026
ISBN:

9781475548242
ISSN:

1018-5941

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