Population Growth and Chronic Unemployment in Developed Countries

Unlike the situation in the developing countries, high levels of population growth and a scarcity of co-operation factors of production are not typical of the economically advanced countries and thus not a factor in employment problems. On the contrary, according to stagnation thesis, the risk of chronic unemployment in these countries may increase as a result of a slow or declining population growth. This theory starts from the assumption that for an economy to operate at a high level of income and employment, savings and investment must be in equilibriwm, or in the other words, the rate of investment must not be too low, nor that of saving too high. If in the light of prospective earnings, entrepreneurs are not prepared to invest an amount equal to that which individuals desire to save, the level of income and employment would contract. According to Keynes, especially those of his followers who formulated the stagnation thesis, a declining population through a deficiency of effective demand, tends to exertends to exert a depressive effect on investment, and a possible upward pressure on the propensity to save. A declining population or a lowering of its rate of growth it was adderted would discouorage investment, since the expectations of future earnings on the part of the entrepreneurs, as determined by the marginal efficiency of capital, would become more pessimistic. In addition, saving might increase as a result of the decline in the average size of the family, or at least not adapt themselves to the lower levels of investment. As a result of the growing discrepancy between savings and investment, the process of contraction would set in, leading to a stagnation of income and the emergence of chronic unemployment.

A number of arguments questioning the supposed effects of declining population on chronic unemployment have been advanced. Most of these concern the underlying hypothesis of declining investment opportunities and increased savings. The importance of fractors other than demographic onces in determining employment is generally acknowledged. Even if a slow population growth might, through the mechanism described, in principle have the effect envisaged bu the stagnationist writers, any such effect could be easily counteracted by the various mens at the disposal of policy-makers, thus assuring full employment under conditions of economic growth.