Structure of population and supply of labour, Managerial Economics

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THE STRUCTURE OF POPULATION AND SUPPLY OF LABOUR

The structure (also called age distribution or composition) of population, or the number of people in the different age groups is of considerable economic significance; for not all individuals in the population contribute equally to production.  Given the numbers of the population, the supply of labour depends on the proportion of people who are members of the workforce.  The size of the economically active population is determined especially by:

  i.      Population Size

In any given economy, the population size determines the upper limit of labour supply.  Clearly there cannot be more labour than there is population.

ii.         Age Structure

The population is divided into three age groups.  These are:-

The young age group usually below the age of 18, which is considered to be the minimum age of adulthood.  People below this age are not in the labour supply, i.e. they are supposed to be working or looking for work.

The working age group, usually between 18 and 60, although the upper age limit for this group varies from country to country.  In Kenya for example, for public servants, it is 55 years.  It is the size of this group which determines the labour supply.

The age group, i.e. above 60 years are not in the labour force.

iii.        The Working Population

Not everybody in the working age group will be in the labour force.  What is called the working population refers to the people who are in the working group, and are either working or are actively looking for work i.e. would take up work if work was offered to them.  These are sometimes called the active people.  Hence this group excludes the sick, the aged, the disabled and (full time) housewives, as well as students.  These are people who are not working and are willing or are not in a position to take up work if work was given to them.

iv.        Education System

If the children are kept in school longer, then this will affect the  size of labour force of the country.

v.         Length of the Working Week

This determines labour supply in terms of Man-hours.  Hence the fewer the holidays there are, the higher will   be labour supply.  This does not, however, mean that if the number of working hours in the week are reduced, productivity  will fall if there is a high degree of automation.

vi         Remuneration

The preceding five factors affect the supply of labour in totality.  Remuneration affects the supply of labour to a particular industry.  Thus, an industry which offers higher wages than other industries will attract labour from those other industries.

vii.       The Extent to Barriers to Entry into a Particular Occupation

If there are strong barriers to the occupational mobility of labour into a particular occupation, e.g. special talents required or long periods of training, the supply of labor to that occupation will be limited.

The most popular way of presenting the age composition of the population of a country is in the form of a bar graph where the length of each indicates the number of people in that particular age group.

 

A country with a high birth and death rate will have a large proportion of young people in its population.  This is the most significant feature of the structure of population in East Africa, as is the case throughout the low-income countries.  Life expectancy is relatively low because the death rate is high in all the age groups.  Thus between 40 per cent and 45 per cent of the population are below the age of 15 years and only about 4 per cent are older than 60 years.

The situation is however different in developed countries, which normally have a stationary population with low birth and death rates.  Expectancy of life is high and most people survive into the older age groups.  The percentage of young people in these societies is typically between 20 per cent and 25 per cent, about 15 per cent of the population is over 60 years of age.

The economist is interested in the age distribution of population because it reveals the proportions between the numbers in the working age groups and the numbers in the non-working age groups.  This dependency ratio, as it is called, is measured in the following manner.

Dependency Ratio =             

Number below  school leaving age + Numbers over  retirement age

             Number between school leaving age and retirement age

The dependency ratio will be relatively high in the developing countries e.g. there is only one person of working age for every one that is too young or too old to work in East Africa.


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