Adding an additional worker to the population increases the maximum potential GDP of the country (the amount of product that would be produced if every potential worker was employed with full efficiency). The labour supply has increased.
Adding an additional person, whether a worker or not, also increases the aggregate demand (the total demand for final goods and services in a country), as the person spends money purchasing what he needs. Someone has to produce these additional goods and services that are to be purchased by the additional person. Consequently, additional labour is needed to produce them.
Conclusion: an increase in population size leads to an increase in jobs.
But, it’s not that simple. There are some key issues here that need to be addressed:
- How much additional labour is needed to meet the needs of one additional person?
- Can supply be increased to meet the additional demand?
How much additional labour is needed to meet the needs of one additional person?
In the UK, there are approximately twice as many people as there are workers. Therefore, every worker has to produce enough goods or services for the needs of two people. Therefore, every additional person in the country creates half a job.
However, an immigrant entering the country has taken a job. His presence and spending power has created only half a job. Therefore overall, the native workers lose access to half a job per additional immigrant worker. If the worker is high-wage, then the high spending power may result in more than one job being created; but it seems logically impossible that a low-wage worker can create the demand for as much as one job, for if this were true there would be full employment.
Can supply be increased to meet the additional demand?
Sometimes when there is an increase in demand, there is not the capital to immediately respond to that demand. Supply therefore can’t meet demand, and in response prices may go up, or there may be an increase in waiting times to access a service. If prices go up, this may raise enough revenue to increase supply to meet the demand, and thus create jobs.
When the government is responsible for providing a good or service (e.g. transport networks, police, education, healthcare, social housing), it may deliberately choose not to increase supply in response to an increase in demand. This appears to have occurred in several sectors in the UK. Increased demand therefore increases congestion, but does nothing to increase supply or jobs.
Other times it may be physically impossible to increase supply. Where something is dependent upon natural resources for example, those resources might not replenish fast enough to meet a higher demand. Alternatively, they may be protected through regulation. This is particularly important to prevent ‘tragedy of the commons’ situations, where the marginal cost to an additional user of a resource is small, but use cannot continue forever without destroying supply. Examples in the UK include the use of land; land is largely used either for agriculture or infrastructure, and the two are not compatible, and nor is either compatible with the preservation of the natural environment. Space in the UK is at a premium.
Finally, increases in supply may be limited by the lack of appropriately skilled labour. Various professions in the UK are not being taught at the rate they need to be to meet the current level of demand, let alone any increases in demand. The UK can respond to this by bringing in workers trained in other countries, but this exacerbates the problems in sectors already experiencing congestion, and arguably is unfair to the country who trained the worker but does not get the benefit of that training.
Overall, then, the value of an additional person in the economy depends crucially on how much demand he brings relative to what he himself provides through labour, and what additional demand he places on sectors that are already congested. In particular, the country does not have capacity for a larger population, and consequently it may be better to increase demand through increasing spending power amongst the unwaged and low-waged native workers of the country, rather than through bringing in workers from other countries (who then suffer).