As labour is one of the factors of production, any changes to the population will affect the economy accordingly. Therefore it is important to look at the effects of the changing the size and structure of population on an economy. In this tutorial we will look at different aspects of changes to the population.
Increase in population
Population in a country can increase either due to increase in birth rate and reduction in death and infant mortality rate and/or due to immigration.
Advantages of increase in population
- It increases labour force and therefore supply of labour.
- It increases mobility of labour as a higher workforce tries to look for employment.
- It increases demand for goods and services; demand for goods and services is a signal for producers to increase production.
- If increases in demand for goods and services results in higher output from producers, it will lead to more investment and creation of employment opportunities.
- In many cases, an adequate population is necessary for certain services to be feasible. This is the case for many Maldivian islands which does not have certain services and such services actually could not be started due to the population being too small.
Disadvantages of increase in population
- If increase in population is not managed properly, it could lead to social problems like crowding and congestion.
- It requires production of more consumer goods at the expense of capital goods.
- Increase in population often leads to increases in poverty if not properly managed.
- It could put strain on the scarce resources and it requires a higher government expenditure on infrastructure and basic facilities.
Structural Changes to population
Economic effects of an increase in the percentage of population in working age group
- It results in a lower dependency ratio.
- A higher working age group increases the national output.
- It encourages production of more capital goods.
- It increases economic growth and improves standard of living.
- If properly managed, it reduces poverty.
- However, government has to carefully manage this resource and must make sure that employment opportunities are provided to them. They must also be provided with education and training so that their efficiency and skill is improved.
Economic effects of an increase in the percentage of population in dependent age group
- It increases burden on the working age group to produce goods and services for everyone.
- It requires increased government spending on healthcare and education.
- It requires production of more consumer goods.
- It could lead to poverty and lower rate of economic growth.
Economic effects of an ageing population
- More resources have to be spent for the production of consumer goods and services for the aged.
- Higher government expenditure on healthcare and retirement pensions.
- Low rate of economic growth.
Undesirable geographical distribution of population
- Population spread into small groups – like in small Maldivian islands
- The small size of population in such groups make it difficult to provide social and economic facilities
- Unnecessary duplication of works and resources