Worldwide, policymakers have tended to focus on the high population growth in many developing countries. Although the fertility rate has declined by one birth per woman in the past 15 years, average population growth rates have fallen less (tables 2.1 and 2.2). Between 1980 and 2030 the population of developing countries will more than double—to 7.2 billion, compared with 1 billion for high-income countries—further increasing the developing country share of world population (figure 2a).

Will this population boom depress economic growth and living standards? In the short run an increase in population means lower per capita income growth. High birth rates and young populations increase dependency ratios, making it more difficult to invest in human resources—the key to boosting labor productivity. But in the long run the larger number of workers may accelerate growth. According to the World Bank's World Development Report 1995: Workers in an Integrating World, poor labor outcomes may have little to do with the growth of labor supply. In the past 30 years growth in the working-age population (15-64) was remarkably similar across regions—ranging between 2.5 percent and 3.2 percent a year—but there were wide differences in GDP growth. In East Asia output growth exceeded expansion of the working-age population by about 5 percentage points a year; in Sub-Saharan Africa growth of the working-age population (roughly 3 percent a year) exceeded GDP growth. The dilemma remains, however, of what to do with future labor supply when economic growth is stagnant, populations continue to grow quickly, and most countries restrict immigration. It usually takes about a generation for a decline in fertility to appreciably slow growth in the labor supply.

At current and projected fertility rates, developing countries are expected to add about 640 million people to the world's labor force in the next 15 years (table 2.3). The fastest increases are expected in Sub-Saharan Africa and the Middle East and North Africa. In many countries almost all men between the ages of 25 and 54 are in the labor force (World Bank 1995g). The participation of women, however, often changes significantly as development proceeds. Female participation tends to be higher when an economy is organized around family-based production in agriculture, as in many Sub-Saharan African countries, and at higher levels of per capita income, when labor market options for women increase. Child labor, a sign of poverty, is pervasive in many parts of the world. While child labor may reduce household poverty, it is always at the expense of children's education and well-being. Income uncertainty, household size, and lack of schooling opportunities are strongly correlated with child labor.

How is the labor force deployed? In developing countries most workers are self-employed or work in family enterprises (table 2.4). As economies grow, however, more work for wages. In middle-income countries better educational opportunities and lower fertility have led more women to enter the labor market, and they now account for a growing share of wage employment. In low-income countries unpaid work and family responsibilities, as well as lack of investment in women's education, are strongly associated with their limited participation in the labor force.

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Without material assets or human capital, the poor hire out their labor, mostly in unskilled work. Poverty is the result when people cannot earn enough from their labor to maintain a minimal standard of living. An estimate of the number of poor depends, of course, on the choice of a poverty threshold. And while there is little disagreement on one aspect of the threshold—the income needed to buy a minimum standard of living and nutrition—what constitutes minimum basic needs is more subjective. So the perception of poverty varies by culture, and criteria for distinguishing the poor from the nonpoor reflect national priorities. In general, as countries become richer, their perception of what constitutes an acceptable level of consumption changes, and so does the poverty line.

To allow comparisons across countries the World Bank has established an international poverty line based on $1 a day per person in 1985 purchasing power parity prices (table 2.5). According to this measure, inroads have been made in reducing poverty, although overall gains have been modest. While the proportion of poor in the world's population declined slightly, from 30 percent to 29 percent, between 1987 and 1993, the number of people living on less than $1 a day increased, from 1.2 billion to 1.3 billion (table 2a).

Where are the world's poor? South Asia is home to a quarter of the world's population but contains 39 percent of its poor and has the highest aggregate poverty level (43 percent). East Asia accounts for roughly a third of the world's poor, most in China and Indochina, with the incidence of poverty showing a modest decline between the late 1980s and the early 1990s. And while Sub-Saharan Africa has only 17 percent of the world's poor, the incidence of poverty has remained unchanged at around 39 percent. Its people remain among the poorest in the world, with poor access to productive resources and services, few employment opportunities, limited access to assets (particularly for women), and inadequate education, health, and water and sanitation services.

Does economic growth reduce poverty? Analysis of a new World Bank development database finds a strong positive relationship between growth and poverty reduction (Ravallion and Chen 1996; and Deininger and Squire 1996). This finding is confirmed by a World Bank research project on India, which estimated that a 10 percentage point increase in mean consumption resulted in a 12-13 percent decline in the proportion of the population living below the poverty line (Ravallion 1996).

While the relationship between growth and poverty is unambiguous, that between growth and inequality is less clear. Income inequality, with its political and economic overtones, stubbornly persists in many countries (table 2.6). The question of whether, and under what conditions, economic growth is associated with changes in inequality has led to much empirical work—and to Kuznets's famous hypothesis that inequality increases with income at the early stages of development and decreases at higher levels of income. Lack of time-series data over a long period prevents the testing of this hypothesis. However, recent work at the World Bank suggests that there is no strong relationship between growth and changes in aggregate income inequality as measured by the Gini coefficient—that is, the Gini coefficient appears to change little with changes in income (Deininger and Squire 1996).

Source: World Bank 1996f.

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