ECON2225 Economics of Population Changes (2019) : S. Paul Lau

Course organization
Motivating examples
Population and output in the pre-industrial era
Population trends after 1800
Economic consequences of population aging
Introduction
ECON2225 Economics of Population Changes (2019)
S. Paul Lau
Faculty of Business and Economics, University of Hong Kong
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Course organization
Motivating examples
Outline
1 Course organization
2 Motivating examples
Our focus
Readings for this topic
3 Population and output in the pre-industrial era
Data
The Malthusian model
Breakdown of the Malthusian model
4 Population trends after 1800
Demographic transition
Population trends: (1) Mortality
Population trends: (2) Fertility
Population trends: (3) Size/Growth
Population trends: (4) Shifts in age distribution
5 Economic consequences of population aging
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Course organization
Motivating examples
Course organization
Syllabus
Lecture notes: Moodle
Term test
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Course organization
Motivating examples
Our focus
Example(s):
Economist (July 25, 2015) article “Baby love”
NY Times (August 13, 2013) article “Germany …ghts population drop”
http://www.nytimes.com/2013/08/14/world/europe/germany-…ghts-
population-drop.html?ref=population&pagewanted=print
etc.
Concepts / Issues involved:
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Course organization
Motivating examples
Our focus
Our focus
Population changes: widely observed; slowly changing but can be
quantitatively signi…cant after a few decades
Example of the “frog in slowly heating water” story?
A¤ecting individual (economic/sociological) behavior & aggregate
outcome?
What are the causes?
What are the consequences?
Any policy implications?
First, look at trends in world population & output
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Course organization
Motivating examples
Our focus

Lee, R. (2003), “The demographic transition: Three centuries of
fundamental change,” Journal of Economic Perspectives 17(4), 167–90.
Weil, D. (2009), Economic Growth. Second edition. Boston: Pearson
Addison Wesley. Chapters 4 & 5
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Course organization
Motivating examples Data
Population and output in the pre-industrial era The Malthusian model
Population trends after 1800 Breakdown of the Malthusian model
Data
Population and output over the long run
First, output from a historical perspective:
Sustained growth in GDP per capita is a “recent” event (not longer than 2
centuries)
Weil (2009), Figure 1.7
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Figure 1.7 GDP per Capita by Country Group, 1820–2003
Copyright © 2009 1-6

Introduction
Pearson Education, Inc.
Course organization
Data
The previous graph is in ratio scale (Why?)
USA:
Weil (2009), Figure 1.2: in ordinary scale
Ratio (or log) scale: Weil (2009), Figure 1.4
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Figure 1.2 GDP per Capita in the
United States, 1870–2005

Introduction
Figure 1.4 GDP per Capita in the United States, 1870–2005 (Ratio
Scale)

Introduction
Course organization
Data
Population:
World population level (y ): Lee (2003), Table 1
Year 1800 1900 1950 2000 2050
Pop. (billions) 0.98 1.65 2.52 6.07 8.92
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Course organization
World population growth rate (g ): Lee (2003), Table 1

Year 1800 1900 1950 2000 2050
Pop. growth (%) 0.51 0.56 1.80 1.22 0.33
Its relation to the level (“y ”):
yt yt 1
gt = (1)
yt 1
Figure:
https://ourworldindata.org/world-population-growth/
Some numbers are estimated
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1/5/2018 World Population Growth - Our World in Data
World population, 1750-2015 and projections until 21003
I.2 Long-run historical perspective

World Population from 10,000 BCE to 2100 CE
The chart below shows the the increasing number of people living on our planet over the last 12,000 years.
A mind boggling change: The world population today that is 1,860-times the size of what it was 12
millennia ago when the world population was around 4 million or half of the current population of London.
What is striking about this chart is of course that almost the entire action happened just very recently.
Historical demographers estimate that around the year 1800 the world population was only around 1 billion
people. This implies that on average the population grew very slowly over this long time from 10,000 BCE
to 1700 (by 0.04% annually).
After 1800 this changed fundamentally: The world population was around 1 billion in the year 1800 and
increased 7-fold since then.
Around 108 billion people have ever lived on our planet. This means that today’s population size makes up
6.5% of the total number of people ever born.4
The visualization allows you to add the UN’s projected population increase through the end of the 21st
century as estimated in their Medium Variant (for more detail on the UN’s population estimates, see below).
Hovering your mouse over the plotted line will show you population figures for each year.
https://ourworldindata.org/world-population-growth/ 2/33
Course organization
Data
Slow population growth for most of human history
According to some studies, growth rate was less than 0.1% (about 0.09%)
per year for many centuries before AD 1800
i.e., increase of 1% every 10 or 11 years
Comparison: HK population growth (3.959 millions in 1970, & 7.061
millions in 2010)
Sharp changes in world population growth rate in the last 200 years
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Course organization

Thomas Malthus (Essay on the Principle of Population, 1798)
Objective: to explain why there was no (or very low) growth in population
and GDP per capita
A model involving intertemporal elements:
2 variables: population (L), income per capita (y = Y /L)
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Course organization

Assumptions:
(1) (about production technology) large population size reduces income
per capita: Why?
Weil (2009), Figure 4.3: downward-sloping line in Panel a
(2) (about behavior) higher income per capita raises the growth rate of
population: upward-sloping line (Panel b): Why?
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Course organization

(a) Equilibrium analysis:
E.g. starts at point A
Low population size
! High income per capita in the current period (panel a)
! Positive population growth rate (panel b)
Overtime, pop size rises (see the arrows in panel a)
This process continues . . .
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Course organization

until . . .
Steady-state (i.e., unchanged) level of income per capita, y SS ,
& steady-state level of population, LSS (i.e., zero population growth).
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Course organization

(b) Comparative statics
E.g., productivity improvement
An outward shift in the relationship between population size and income
per capita
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Course organization

Immediate e¤ect (with unchanged population size): higher income per
capita
Adjustment: positive population growth rate
... Until ...
New steady-state (zero population growth): higher population level, but
no change in income per capita
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Course organization

Higher productivity brings only temporary, but not permanent, e¤ect on
living standards
Why does a shift of the relationship in Panel a always lead to this result
(temporary, but not permanent, e¤ect on living standards)? (DIY)
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Course organization

Empirical evidence:
Potato was introduced to Ireland in 1750 (! increase in population, but
not much change in living standards)
Generally, the model is good in explaining pre-industrial Europe, but not
for modern industrial era
Why?
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Course organization

(a) The negative relationship between population size & income per capita
broke down:
technological progress made growth of income per capita possible, even
when increases in population dilute the resource level per capita
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Course organization

(b) The positive relationship between income per capita and population
growth rate broke down:
nowadays, rich countries tend to have low population growth rates
21 / 41
Figure 4.6 Breakdown of the Malthusian Model in Western
Europe

Introduction
Course organization Demographic transition
Motivating examples Population trends: (1) Mortality
Population and output in the pre-industrial era Population trends: (2) Fertility
Population trends after 1800 Population trends: (3) Size/Growth
Economic consequences of population aging Population trends: (4) Shifts in age distribution
“Economic forces kept population growth in close check for most of
human history but that relationship has changed rapidly in the last two
centuries.” (Weil, 2009, p. 85)
A useful concept:
Demographic transition:
“The transition began around 1800 with declining mortality in Europe. It
has now spread to all parts of the world and is projected to be completed
by 2100.” (Lee, 2003, p. 167)
Note elements of time and regions
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Before:
Short life, high fertility & a young population
During the transition:
“…rst mortality and then fertility declined, causing population growth …rst
to accelerate and then to slow . . . ” (Lee, 2003, p. 167).
After:
Long life, low fertility & an old population
See, for example, Bloom and Williamson (1998), Figure 1
Bloom, D. E. and J. G. Williamson (1998), “Demographic transition and
economic miracles in emerging Asia,” World Bank Economic Review 12,
419-455.
23 / 41
Introduction

Now, more detailed look at individual components
(1) Mortality decline
Sources:
United Nations
http://www.un.org/esa/population/unpop.htm
Human Mortality Database
http://www.mortality.org
Similar patterns, but also irregularities
24 / 41

Life expectancy at birth (a summary statistic)
“Expectation of life at birth refers to the number of years of life that a
person born in a given year is expected to live if he/she were subjected to
the prevalent mortality conditions as re‡ected by the set of age-sex
speci…c mortality rates for that year.”
http://www.censtatd.gov.hk/hkstat/sub/sc20.jsp
Key point: ... the number of years of life that a person born in a given
year is expected to live ...
25 / 41

(a) Steady increases in life expectancy
E.g., life expectancy at birth (global trend): Lee (2003), Table 1
Year 1800 1900 1950 2000 2050
LE 27 30 47 65 74
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Exceptions:
Health reasons (e.g. AIDS): Some African countries;
Social and political instability: Russia in 1990s
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(b) Faster rate of increase in life expectancy in developing countries
Lee (2003), Figure 1
China: life expectancy rose from 41 in 1950-54 to 70 in 1995-99, a gain of
0.65 years per year (Lee, 2003, p. 171)
Compared with the increase of 0.19 years per year (66.1 in 1950-54 to
74.8 in 1995-99) for the More Developed Countries (Lee, 2003, p. 172)
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Population trends: (2) Fertility

(2) Fertility decline
http://www.censtatd.gov.hk/home/index.jsp
“Total fertility rate (TFR) refers to the average number of children that
would be born alive to 1000 women during their lifetime if they were to
pass through their childbearing ages 15-49 experiencing the age speci…c
fertility rates prevailing in a given year.”
Alternative de…nition: per woman (instead of per 1000 women); resulting
in di¤erent units in the de…nition for TFR (e.g., 1500 for the …rst
de…nition versus 1.5 for the second)
Meaning: # of children that a typical woman will have during her lifetime
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Pattern:
(a) Over time, TFR decreased
Across countries:
(b) High TFR in least developed countries,
but likely to have rapid decline
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(a) Population size:
World population: >7 billions now (October 2011 according to U.N., and
March 2012 according to U.S. Census Bureau)
1900: 1.65 b.
1950: 2.52 b.
2000: 6.07 b.
Lee (2003), Table 1
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(b) Population growth rates:
Figure:
https://ourworldindata.org/world-population-growth/
Particularly high growth from 1950 to 2000
Recall the diagram about demographic transition in Bloom and Williamson
(1998), Figure 1
(c) Future trends in population:
great spike or whatever ...?
In general, huge uncertainty about these forecasts (especially the
forecasts several decades, or even centuries, from now)
32 / 41
1/5/2018 World Population Growth - Our World in Data
World population, 1750-2015 and projections until 21003
I.2 Long-run historical perspective

World Population from 10,000 BCE to 2100 CE
The chart below shows the the increasing number of people living on our planet over the last 12,000 years.
A mind boggling change: The world population today that is 1,860-times the size of what it was 12
millennia ago when the world population was around 4 million or half of the current population of London.
What is striking about this chart is of course that almost the entire action happened just very recently.
Historical demographers estimate that around the year 1800 the world population was only around 1 billion
people. This implies that on average the population grew very slowly over this long time from 10,000 BCE
to 1700 (by 0.04% annually).
After 1800 this changed fundamentally: The world population was around 1 billion in the year 1800 and
increased 7-fold since then.
Around 108 billion people have ever lived on our planet. This means that today’s population size makes up
6.5% of the total number of people ever born.4
The visualization allows you to add the UN’s projected population increase through the end of the 21st
century as estimated in their Medium Variant (for more detail on the UN’s population estimates, see below).
Hovering your mouse over the plotted line will show you population figures for each year.
https://ourworldindata.org/world-population-growth/ 2/33
Introduction

According to Hong Kong: Public Engagement Exercise on Population
Policy (2013), p. 5
http://www.hkpopulation.gov.hk/public_engagement/en/doc.html
“Latest population projections show that by 2041, nearly one third of
Hong Kong’s population will be aged 65 or above...
The number of people aged 65 or above will increase to 2.16 million by
2031 – that is, more than double the 980,000 in 2012. By 2041, that
…gure will rise further to 2.56 million.”
Related to the concept of age distribution, and how it changes over time
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(a) Age distribution:
Number of persons in di¤erent age groups
E.g., number of persons aged under 5; number of persons aged from 5 to
9; etc.
Population pyramid
Hong Kong (from 1961 to 2016):
http://www.bycensus2016.gov.hk/en/bc-population-pyramid.html
e.g., 2036: Figure
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Hong Kong Population Pyramid, 2036
Male Female
85+
80−84
75−79
70−74
65−69
60−64
55−59
50−54
Age group
45−49
40−44
35−39
30−34
25−29
20−24
15−19
10−14
5−9
0−4
300 200 100 0 100 200 300 400

Thousand persons

Sometimes, it may be easier to use some summary statistics
(b) Population aging: increase in mean/median age of the population
E.g. the median age of the population in HK rose from 20 in 1966 to 37
in 2001 & 43 in 2016 (C&S HK)
(c) Shifts in the age distribution: summarized by proportion of young
people (e.g., < 15), proportion of old people (e.g., 65), etc.
(d) An alternative de…nition: dependency ratios
Dependency ratio (DR ) — or, total dependency ratio — refers to the
number of persons aged under 15 and those aged 65 and over per 1000
persons aged between 15 and 64
# (x < 15) + # (x 65)
DR = 1000 (2)
# (15 x < 65)
Child dependency ratio (DRchild ) refers to the number of persons aged
under 15 per 1000 persons aged between 15 and 64.
Elderly dependency ratio (DRelderly ) refers to the number of persons aged
65 and over per 1000 persons aged between 15 and 64.
DR = DRchild + DRelderly
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(e) Why do we use DRs?
Implicit assumption: Resource ‡ow between “consumers” and “producers”
Stages of economic life-cycle: childhood, adulthood/working, retirement
(f) Hong Kong:
Year 2001 2010 2011 2012 2021 2031 2041
Dependency ratio 399 354 352 355 471 633 712
Hong Kong: Public Engagement Exercise on Population Policy (2013), p.
48
http://www.hkpopulation.gov.hk/public_engagement/en/doc.html
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(g) Dependency ratio by level of development:

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Course organization
Motivating examples

An old saying, “With every mouth God sends a pair of hands,” provides a
good starting point for thinking about the impact of population and
economic growth. (Weil, 2009, p. 83)
Di¤erent consumption needs & productive capacity at di¤erent stages of
the life cycle
More generally,
Implications of population aging on resources:
Labor input (quantity & quality), physical capital, human capital
(education, health), technological progress
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Course organization
Motivating examples

Depending on:
(a) Age composition e¤ect (“accounting” perspective)
(b) Behavioral changes
E.g., savings, retirement age
E¤ect on education?
On health?
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Course organization
Motivating examples

(c) Institutional or policy di¤erences
e.g., Old-age support by family members?
Any social security programs (PAYGO or fully funded) for
intergenerational transfers?
Is retirement age rigid? Incentives (or disincentives) to retire earlier?
Education?
Health?
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Course organization
Motivating examples

Some general answers,
But precise answers for a particular society also depend on:
whether future demographic changes are mainly a¤ected by mortality or
fertility decline,
Citizens’behavioral responses
Institutional arrangement of the society,
Etc.
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Course organization

ECON2225 Economics of Population Changes (2019)

Faculty of Business and Economics, University of Hong Kong

Readings for this topic

Copyright © 2009 1-6

Copyright © 2009 1-8

Copyright © 2009 1-9

World population growth rate (g ): Lee (2003), Table 1

World population, 1750-2015 and projections until 21003

I.2 Long-run historical perspective

The Malthusian model

The Malthusian model

The Malthusian model

The Malthusian model

The Malthusian model

The Malthusian model

The Malthusian model

The Malthusian model

Breakdown of the Malthusian model

Breakdown of the Malthusian model

Copyright © 2009 4-28

Population trends: (1) Mortality

Population trends: (1) Mortality

Population trends: (1) Mortality

Population trends: (1) Mortality

Population trends: (1) Mortality

Population trends: (2) Fertility

Population trends: (3) Size/Growth

Population trends: (3) Size/Growth

World population, 1750-2015 and projections until 21003

I.2 Long-run historical perspective

Population trends: (4) Shifts in age distribution

Population trends: (4) Shifts in age distribution

300 200 100 0 100 200 300 400

Population trends: (4) Shifts in age distribution

Population trends: (4) Shifts in age distribution

(g) Dependency ratio by level of development:

Economic consequences of population aging

Economic consequences of population aging

Economic consequences of population aging

Economic consequences of population aging

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