Two parts paper (14 pages)

ECON 3424

Population Issue and the Economy in Different Phases

Zemin Ren

May, 27th, 2017

Population growth has various effects on a society and its economy. A big population of a country can have ability to facilitate its economy, but because of that, the certain country will consume a significant amount of resources. How to keep population in control is an important issue for all countries. Population growth issue can be divided into two main aspects. One of them is the natural population growth, which is related to, for instance, fertility rate and relevant policies. The other one is immigration. Hence, for understanding the population issue and figuring out its solution, it’s important to analyze these two aspects.

Population growth problem could be important for both a developing country and a developed country. Let’s consider this problem by analyzing the case in a developing country, because the problem can be more obvious. An important concern for development countries is if a continued high population growth may keep them mired in poverty, which will be the case if a country’s population grows faster than its national income. In other words, population growth would be associated with poverty instead of prosperity, which is a trend we have seen in developing countries. However, this doesn’t represent that population growth always has a negative effect on a country’s economy. Population growth is a direct source of a country’s productive capacity and overall demand for products and services. It’s interesting to think about China plus its one child policy, and USA. In developed nations such as USA, largely elderly populations are increasing. Nevertheless, during the great depression and World War II, fertility rates were low. According to the data provided by the Center for Disease Control and Prevention, between 1929 and 1945, the total fertility in USA was about 2.49 children for women whose age was around 15-44. However, after the end of the war, there was a rapid growth of new born, which happened between 196 and 1964. At that time the total fertility rate was 3.4 kids. Since there was a significant decline in fertility rate after the baby boom, the problem that a younger generation had to face showed up. The old-age dependency ratio, which is the ratio of retired population above 65 years old over the population that between 16 to 64 in 1975 was about 47% in USA. It meant that there was roughly one retiree for two workers. So aging population can affect the economy directly.

Comparing to USA, it’s easy to say that any reduction in population growth will eventually result in a similar problem as what happened in USA. If population growth declines, there will be fewer labor to take care of aging retirees who were born in time when population growth was larger. The one child policy introduced in 1978 led to a significant reduction in birth rates. This future increase dependency from elders will bring out a severe challenge to the social welfare for elders, for example, health care. According to Wang Feng, who is an Associate professor at University of California, Irvine, no nation can be successful as it comes to the point of replacement of generation after a rapid fertility rate growth. Therefore, there is no policy to control the population growth by manipulating fertility rate, that can be used all the way through centuries. But to relief the negative effect from the phase when it comes to the time when the (small population of) new replacing the (large population of) old, I believe that to introduce the immigrants could be an effective way.

Although large population might have a negative effect on a country’s economy, it’s undoubted that large population can be a good catalyst for economic growth. If there is more active labor in the population, the old-age dependency ratio will be lower. To achieve that outcome, introducing immigrants could be a way to effective way. This idea has been adopted by many countries. For example, Canada. There is a well-known government program called Canada Immigrants Investor Program, which aims at helping business investors and their families gain entry into Canada. A qualified applicant has typically owned or managed an active trade or business. People that qualify for the program and their immediate family can obtain permanent resident Visas by investing CAD $400,000. This policy does attract many rich foreign people who want to gain the permanent resident Visa and prefer the social welfare in Canada. But more importantly, it helps to support the country’s economy by increasing the population, because the direct effect is to have more investment in the economy. According to Semotiuk, Entrepreneur and investor immigration can support Canada's economic development priorities, including building infrastructure, driving innovation, and attracting foreign direct investment and talent.

As I mentioned above, introducing immigrants could be helpful for an economy. However, once there is an excess labor, the country will not welcome immigrants anymore. Therefore, comparing to the policy that welcomes immigration, there is also a kind of policy to restrict it. There is a famous immigration policy in China called Internal Immigration policy. China’s agricultural reform in 1978, which replaced collective ownership of land with the Household Responsibility System increased the efficiency of agricultural production significantly. As the result, it’s possible to release some excessive labors from the rural place to the urban area. The surplus labor generated by the reforms was first absorbed by so-called “township village enterprises” (TVEs), and the small industrial firms or workshops were owned by local governments. The TVEs were the main engine of Chinese economy growth in the late 20 years in 20th century. Moreover, they brought relative affluence to the countryside in the first phase of reforms. The employment opportunities provided by the TVEs prevented lots of rural Chinese workers from looking for work in urban areas. In addition to the TVEs, Chinese policy severely restricted internal migration, by a rigid household registration system called “Hukou”. Under this system, rural residents are required to register with local authorities and didn’t have the right to become urban residents even when they lived and worked in a city. The “Hokou” system was the policy designed for restricting the rural to urban migration.

Population growth is important for economic growth. But it's not easy to manipulate that, because when a large and young population become old population, the entire country needs to take care of the elders. The nation’s productivity and national income will be lower. To understand this problem and introduce more immigrants no matter from the rural place or foreign countries does help to ease the problem. But immigration could bring out many problems such as social safety and occupation of health care. So, immigration policy can be terminated once the country achieves what it wants. As the result, to act the policy that restricts immigration also becomes important for policy makers. Population as an economic issue always stays unresolved in the long run. It is like a cycle, which has different phases. In each phase there is an appropriate principle and policy. It’s necessary for the government to recognize the phase and decide the most appropriate policy in each phase.

Cited Page:

Data for U.S. fertility rates, CDC (Center for Disease Control and Prevention), www.cdc.gov/search.do?action=search&queryText=fertility+rates

Date for old-age dependency ratio in USA, www.bls.gov/emp/emplab10.htm

Semotiuk, Andy, “How Investors Immigrants Could Help Canada Build Its Economy”, Forbes, May, 16th, 2016

Sinding, Steven, “Population, Poverty and Economic Development”, NCBI, Oct, 27th, 2010, https://www.ncbi.nlm.nih.gov/pmc/articles/PMC2781831/

Wang, Feng, “Can China Afford to Continue Its One Child Policy?”, March, 2005

Xue, Liang, “The Evolution of Township and Village Enterprises in China”, Emerald Group Publishing Limited, 2006