More People, More Inequality?

By Kareen Movsesyan

In today’s political climate, no economic topic has evoked as much emotional reaction as inequality. For some, it is a natural consequence of economic growth and development, perhaps an outcome of the differences in work effort and biology between us. For others, it is an immoral scourge on the Earth, a product of an ill-intentioned bourgeois whose policies disproportionately benefit themselves to the detriment of the common man. The causes and costs of inequality are often in dispute, pitting the left and right into a ceaseless crossfire.

But what if both sides’ narratives were incomplete? What if it was population growth that contributed the most to economic inequality? Regardless of the narratives we may follow, there is merit in the claim that population growth both enables and exacerbates the institutional arrangements that sharpen these divides. Although difficult to prove empirically, this theory provides a useful perspective for anyone interested in demographic and economic trends.

As a disclaimer, when discussing population growth, I am not employing Malthusian catastrophe—the classic theory that unchecked population growth will be self-corrected through war, famine and disease when agricultural production cannot keep up with global demand, bringing global living conditions down to subsistence-level. Instead, my discussion takes a more banal route, beginning with, unironically, the European black plague of 1346–1353.

As Stanford University’s Walter Scheidel and others inform us, the killing of anywhere between 25 percent and 45 percent of the European population “radically changed the ratio of the value of land to that of labor, to the advantage of the latter.” Wages increased, reducing the entrenchment of wealth by feudal elites and, by extension, inequality. Although economists like John Munro qualify that real wages actually fell in the immediate aftermath of the disease, nominal peasant wages nevertheless increased, helping the most indebted peasants. This suggests that population size plays a key role in supply-demand dynamics and wage controls. But how does it increase inequality?

At the level of statistical correlation, “high population growth is associated with a less equal income distribution.” If population growth continues without the greater accessibility of capital to regular workers, then income per capita drops, increasing inequality. This is also true from the supply side of labor. An increasing labor population, either from high domestic fertility rates or from an influx of immigrant labor, allows businesses to offer increasingly competitive positions for less pay. Alternatively, as with Japan, businesses can substitute cheap labor with capital, in this case with automation (see one of many examples here).

Now, of course, because economic growth often accompanies population growth, there should be a natural skepticism of the purported impact of the latter. Indeed, if we look at both India and China, accounting for more than 40 percent of the global population, we would find that income inequality has actually declined between the 1960s and early 2000s. More recent studies, however, find an unfortunate reversal of this trend, accompanied by a slowing of national growth rates.

This raises an important question: what is the relationship between population and economic growth? There are many answers here. For starters, when considering age, a decreasing overall population coupled by an increase of citizens over the age of 65 (like in Japan and many European countries) necessitates constant improvements in economic productivity. Without this, entitlement programs like pensions and healthcare risk insolvency. Recent trends unfortunately seem to corroborate these unsustainability concerns. Depending on the government in question, this is likely to result in massive spending cuts or higher taxes and interest rates to maintain a nation’s social welfare infrastructure.

Another more tantalizing relationship between the two is captured by American demographer Warren Thompson’s 1929 Demographic Transition Model (DTM). Through reference to historic birth and death rates, the DTM suggests that countries’ population growth rates fluctuate within a cycle of national economic development. From stage 1 (agrarian societies) to stage 5 (industrial nations like the U.S. and those in Western Europe), birth and death rates decline and eventually cap during late development. Stage 5 in particular represents the point where “fertility rates have fallen significantly below replacement level (2 children) and the elderly population is greater than the youthful population,” resulting in a natural steady decrease in the total population.

 

The DTM is often used to assuage concerns over endless population growth as well as the threat of environmental and resource deprivation. Specifically, proponents argue that as industrializing nations like India and China continue to develop themselves, their fertility rates should drop in response, reducing population growth at later stages. However, the DTM has its own fair share of criticism, not to mention the outliers of Yemen, Pakistan, Afghanistan and the Palestinian territories that further question its accuracy.

Nevertheless, these empirics seem to suggest that population and economic growth function as complements of each other. While their interaction may result in inequality, that still does not explain how population growth independently causes income inequality. This is where theory plays an important role.

In their book What Every Environmentalist Needs to Know About Capitalism, Fred Magdoff and John Bellamy Foster summarize the widely-believed relationship between population growth and capitalism as such:

Population growth cannot be examined apart from the economic system in which it is embedded. Negative or zero population growth can pose serious problems for a capitalist society always in search of new markets for its goods and requiring a continual expansion of the labor force and of the relative surplus population of the unemployed in order to meet the needs of production and profits.

Surely there are some exceptions to the belief that capitalism demands “endless growth in material consumption,” but the academic consensus nevertheless maintains this position. For a slightly different perspective, take, for instance, Robert Heilbroner and William Milberg’s comprehensive look into economic history in The Making of Economic Society.  In their discussion of the monetization of feudal payments during the Middle Ages—from the transfer of labor, chickens or eggs to actual money—they cite “growing urban demand for food, as town and city populations began to swell” as a powerful factor in the creation of cash economies. Urbanization and population growth thus drove technological and economic innovations (in tools and practices), accelerating the growth of capitalism.

The literature presents a variety of arguments of this type, perhaps suggesting that population growth may be causally linked with economic growth. But assuming this is true, seeing as population growth promotes the technological and economic innovations that exacerbate inequalities, we can therefore say that population growth not only enables capitalist systems to develop, but is required for its continual preservation. This consideration obviously avoids the moral and cost-benefit judgments common to contemporary debates on inequality, but by having a more rigid understanding of demographic effects on economic systems, it should become much easier to have more refined, nuanced debates on the topic.

Given current immigration debates, the popularization of the universal basic income (UBI), as well as recent arguments suggesting that a shrinking population is not only economically fairer, but crucial for reducing environmental degradation, the question of demographic shifts has never been more important. It remains to be seen how the academic consensus holds up to these unpredictable times.