Jobs and Wages

Although the precise relationship between population dynamics and employment is uncertain, it is clear that slowing population growth can help raise wages, especially for less skilled jobs. Economists generally accept that, all else being equal, increases in the size of a labor force tend to bring about decreases in average wages relative to capital costs, although the analysts disagree on the significance of this impact.1 It is clear that the rapid population growth of the past few decades has helped fuel the high unemployment and underemployment rates that contribute to the low cost of labor in many countries. Babies born when world population growth reached its peak rate around 1970 are now in their mid-twenties. When U.S. jobs are moved abroad, the shift is based on a "rational" market decision to produce goods where production costs are lower. While many factors influence employment rates and average wages, an important one is the relative balance between the number of people wanting to work, the paid employment available and the wages that will fill the available jobs as inexpensively for employers as possible. This is the basic economic principle of supply and demand. While the influence of rapid population growth on high-wage jobs is uncertain, few economies can generate enough of these jobs to accommodate annual increases in job seekers.

In just the next 20 years, the world¹s labor force is projected to grow by 730 million people, with more than 90 percent of that increase in developing countries. This number is larger than all the workers employed today in industrialized countries.2 As Yale University historian Paul Kennedy has noted, the global economy must generate at least 40 million additional jobs each year to keep pace with population growth. "If we cannot produce decent employment for millions of young people in America, Europe, Russia and perhaps now even Japan, what prospects do we offer to the emerging hundreds of millions of men and women in the developing world?" he asks.3 Levels of unemployment can vary tremendously even among countries with very low levels of average per capita income. In 1993, official unemployment rates were less than 2 percent in Bangladesh but 14 percent in Nicaragua and Egypt, all of which had per capita income of less than $4,000 annually.4 The obvious link between the growth of the labor force and the proportional need for job creation, however, suggests that lower rates of population growth would have a favorable impact both on unemployment rates and the inequalities in wages that exist today in some wealthy and many less wealthy countries. And, indeed, when World Bank analysts attempted to unravel the forces at work in promoting both high rates of economic growth and reductions in income inequality in several east Asian countries, rapid fertility decline emerged as one of the most important factors the countries had in common.5