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

Mitali Das () and Papa N'Diaye

No 2013/026, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: WP; labor market; Excess labor supply; Lewis Turning Point; Population aging; Demographics; fertility rate; demand condition; TFP contribution; labor market tightness; surplus labor; labor market development; labor shortage economy; excess supply of labor; unemployment results from labor market friction; growth model; growth rate; Labor supply; Labor markets; Labor demand; Wages; Total factor productivity; Global (search for similar items in EconPapers)
Pages: 21
Date: 2013-01-29
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Citations: View citations in EconPapers (38)

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