Labor input

As mentioned in chapter 2, many empirical growth models use the growth rate of the population to explain the level of GDP per capita. However, while there is a negative correlation between these two variables, the causality runs primarily from income to population growth as this chapter will argue. Therefore, the rate of population growth (or the fertility rate) will not appear in my model of per capita GDP. However, population growth is crucial for calculating forecasts for overall GDP growth from the forecasts for per capita growth.

Conversely, a variable that is usually not included in empirical growth models receives a significant role in my framework: hours worked. The usual assumption in the growth literature is that utilization rates of labor supply are constant. However, this is not the case in most countries.

Furthermore, the age structure of the population may be important for the evolution of GDP: a large share of experienced workers in the overall population is likely to be positive for average income as outlined in the work of Malmberg and Lindh (2004a and 2004b).