Commentary
China released its latest population figure for 2022, recording a year-over-year decline, which had not been seen since the Great Leap Forward in the early 1960s. Population growth is important for economic growth because all outputs are produced by labor and capital (non-labor), the two standard input factors. Given a production function in terms of these factors, its change over time (equivalent to roughly GDP growth) will be proportional to the change of these input factors over time. Part of the latter is population growth.
As the output is linked to capital and labor components this way, studies suggest China’s labor share has roughly been near 0.6. Although the share involves price (which is wage) and quantity (which is labor amount) subcomponents, only the latter can provide sustainable growth as (wage) inflation cannot grow indefinitely for a given set of labor supply and demand factors. The over-half share is saying population growth would be relatively more important than machinery in production. This is intuitive as the “worlds factory” is still highly labor-intensive….