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

22 Pages Posted: 22 Feb 2013

See all articles by Mitali Das

Mitali Das

International Monetary Fund (IMF)

Papa N'Diaye

International Monetary Fund (IMF) - Asia and Pacific Department

Date Written: January 2013

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: Demographics, Excess labor supply, Lewis Turning Point, Population aging

JEL Classification: C30, C18, J11, J20, J61, O17

Suggested Citation

Das, Mitali and N'Diaye, Papa, Chronicle of a Decline Foretold: Has China Reached the Lewis Turning Point? (January 2013). IMF Working Paper No. 13/26, Available at SSRN: https://ssrn.com/abstract=2222490

Mitali Das

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Papa N'Diaye

International Monetary Fund (IMF) - Asia and Pacific Department ( email )

700 19th Street NW
Washington, DC 20431
United States

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