<!-- Start of picture text --> Fertility<br>Population by Age<br>FLFPR<br>Male Labor Supply + Female Labor Supply<br>Education Height (Health)<br>Labor Supply<br>Savings<br>Land Effective Labor Physical Capital<br>Traditional Sector Production + Modern Sector Production<br>The Non-Tradable Raw Materials<br>Production<br><!-- End of picture text -->

# **2.4 Demographic Module and Effective Labor**

The CKW 2017 model posits a demographic foundation to the gender dividend model, namely, it begins by projecting the size and gender composition of the labor force, by age- and sex-specific population at each five-year period. The model uses fertility rates by five-year age groups in each five-year period. These projections are further used to calibrate the age-and sex-specific mortality rates and the sex ratio at birth.<sup>7</sup> The labor supply<sup>8</sup> at each five-year time period is then calculated by assuming that the population enters the labor force at the age of 20 and exits the labor force at the age of 65.<sup>9</sup> The age- and sex- specific workforce is calculated by weighting the age-group population with the corresponding age- and sexspecific labor force participation rates in the respective five-year period at baseline.<sup>10</sup> We assume that agespecific male participation rates are fixed at this level over time, but we modify the age-specific female labor force participation rate in each period to reflect the impact of fertility change and women’s substitution between childcare and work on total female labor supply. In this manner, the age-specific female labor force participation rates are endogenized with a factor that reflects the impact of fertility on the labor supply of women, as has been calculated by Ashraf, Weil and Wilde (2013).

Fertility and demographic change influence the accumulation of human capital, captured by the educational attainment and health of the age-specific cohort. These are respectively calculated by the

> 7 A low variant, a medium variant and a high variant are available from the World Population Prospects of the UN (2010). Since the comparison of the projected output is undertaken at the next available period from the baseline, the difference between the variants becomes negligible. Here, the low variant is adopted.

> 8 The original CKW model was a fully supply-side model, meaning there is an implicit assumption of full employment. In the context of many LMICs, this full employment assumption likely does not hold in the short run. However, there are a number of theoretical and practical reasons to not independently model labor demand. Most importantly among these, modeling labor demand in a traditional manner (by deriving labor demand curves from the production function) is inappropriate, as this also assumes full utilization and costless movement of factors -- the same underlying rationale behind a full employment assumption. As a result, any modeling of labor demand outside this traditional method would be necessarily ad hoc, and likely introduce even more untenable assumptions into the analysis, and add to the complexity of the model without guaranteeing more accurate results. In addition, the model already considers several labor market inefficiencies by introducing employment sectors with different wage regimes (average product wages in the traditional sector versus marginal product wages in the modern sector), further blunting the necessity of independently modeling labor demand.

> 9 While the lower-bound for the labor force is commonly 16 or 18, we use age 20 to align with the five-year cohorts that we are using for population projections.

> 10 Labor force participation rates are obtained from the International Labour Office’s ILOSTAT database (International Labour Office (ILO) 2013).

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