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2.1: The Labor Pool Problem



July 30, 2014 – Comments (0)

Board: Macro Economics

Author: qazulight

2.1 is the new PI. It is the number that you should lay awake at night and wonder about. Not worry so much, but wonder. It is the number that makes it different this time.

I just watched a video from an economics professor, he pointed out that Mexico has reached a fertility rate of 2.1 this year. Moreover, most of the rest of the world, outside of Africa has already or will very shortly reach 2.1.

2.1 is the fertility rate needed to maintain a population. Anything less and you get a pretty dramatic decline over 2 generations. Additionally, you get massive changes to the demographic make up of the population that creates societal changes that approach upheaval.

Just for reference, the average across the U.S is 1.95. Now, we need 2.1 to maintain the population, but we need more than that to keep for having demographic changes that will upset, or throw the society into turmoil. The easiest number to work with is the number of workers per retiree. That number is a little over two. It appears that to maintain that number, which means the population must keep growing at least some, the U.S. needs about 3 million immigrants per year. About twice what it is getting between the legal and illegal immigration.

It appears that we could, if we so choose, import the extra 1.5 million a year at this time. We could add another 500,000 illegal immigrants to do the manual labor and another million Indians to do the STEM work.

That is today. However, in a few years the competition for immigrants from Canada, and Western Europe will become more sharp and the numbers available from Mexico will continue to fall off.

In the future it appears we will be able to tap the labor pool in Africa due to the high fertility rate of about 6. However, unlike Hans Rosling who correlates the fertility rate with the child mortality rate, the speaker I just listened to (Tasadduq Shervani at SMU) correlates the fertility rate with education.

He suggests that it has traditionally taken about 70 years to drop the fertility rate from 6 to below 2.1 and that this drop directly relates to the education of women. Further he showed that the rate dropped a great deal with just a moderate amount of education. I.E. a 5th grade education produces a fertility rate of about 4 to 5 and a high school education produces a fertility rate of about 2 to 3 and and a college education produces about 1.5.

I believe that he may be off on the last rate of change because the rate of change of education is changing, and changing fast, and will change faster.

Here is why. MOOCS. Khan Academy and its ilk are changing the face of education and anywhere there is internet, there will be education. Further, the penetration of the internet will increase, and increase a lot.

AT&T is building the first Software Defined Network, this is a really big deal in the U.S. Why? Because it makes the equipment that makes the back bone of a communication system a commodity.


I don't think that anyone is talking about the really big change, and that is, for AT&T to build a software defined network, it must build a pattern for building a software defined network. My guess is that before AT&T can turn off its last TDM circuit, several countries in Africa will be building their version of the software defined network and the education level of women will rise very fast, so fast that we could see dramatic drops in the fertility rate in the next 20 years.

This also applies the elephant in the room India, which at the current rate of fertility and including its current rate of decline will be able to export about 47 million people in the next 20 years, about the same number that will be needed in the U.S. although that leaves a short fall for Europe, I guess they will have to get theirs from Africa.

However, if the fertility rates take a dramatic turn down in India as well as Africa, then we could see significant labor shortages before 2034.

Qazulight (Now back to work for me. 49 more Algebra modules this week.) 

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