Home >News >India >Growth is falling and it has a lot to do with the youth

Global growth has been slowing down since 2008. Economists have come up with several reasons for this. Nevertheless, one factor they seem to miss out on is the slowdown in the growth of the working-age population across the world. Mint takes a deep dive.

How is the working class linked to growth?

“If more workers are entering the labour force, they boost the economy’s potential to grow, while fewer will diminish that potential... Throughout, increases in population have accounted for roughly half of economic growth," says Ruchir Sharma in The 10 Rules of Successful Nations. As more people enter the workforce, they find jobs, start earning, and spend money. As people spend money, there is more consumer demand leading to businesses expanding to meet that demand and, in the process, creating more jobs. This is how a multiplier effect benefiting not just businesses, but also the overall economy, is created.

What does data have to say about this?

Let’s let look at data over the last six decades, by dividing it into two periods. Between 1961 and 1990, the global working-age population (comprising people in the 15-64 age group) grew by 2.05% every year on an average. In fact, in 25 of the 30 years, the working-age population grew by 2% or more. The economic growth during this era averaged 4.11% per year. In 1991, the growth of working-age population fell below 2% and has stayed like that ever since. This has primarily caused the slowing down of economic growth over the last three decades. The growth in the working age population fell to 1% in 2017 and has stayed as is, since.

Stagnant  growth
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Stagnant growth

How has global growth been since the year 1991?

The growth in the working-age population between 1991 and 2019 has averaged 1.53% per year. During this period, global economic growth slowed down to 2.83% per year. Since the global recession of 2008, the working-age population growth has dropped to 1.21% per year with the economic growth slowing down to 2.5% per year.

Is this largely true for western nations only?

As Sharma writes: “In the 1980s, 17 of the 20 largest emerging economies had a working-age population growth rate above 2%, but after 2010 that number fell to just two: Nigeria and Saudi Arabia". In 2019, the growth of the working-age population in India was 1.4%. The last time it grew by 2% was in 2009. So, the restricted growth of working population is not limited to western countries. Any country where the working-age population is not growing by over 2% will find it hard to consistently grow quickly.

Is growth centered around working class?

The growth in working-age population is just one input into the economic growth equation. “Good demographics are often a necessary condition for rapid growth, but never a sufficient condition. The dividend pays off only if political leaders create the environment necessary to attract investment and generate jobs," writes Sharma. This explains why not every country that sees a more than 2% growth in working-age population grows fast.

Vivek Kaul is the author of Bad Money.

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