The law of diminishing returns to labor asserts that due to the finiteness of resources an additional inhabitant would decrease labor productivity. On the other hand, additional labor is often seen to improve the division of labor, raising productivity. So who is right here?
I think that one cannot give any answer on such aggregate level. Diminishing returns should better be applied on individual production / company level. An economy is not a zero-sum game and innovations and new demand for so far unknown products is difficult to integrate.
There's also the concept of time. At what point do we recognize the additional inhabitant. From birth to "ability to produce", he/she increases the Aggregate Demand as he/she is a consumer (without adding much to the Aggregate Output) which means at the time he/she is joining the labour force, they've influenced Aggregate Demand in some way. On the other hand, technology makes it difficult to state that this addition to the labour force will decrease labor productivity.
Division of labour enhance productivity within productive capacity. As Yami Alaran and Eberhard Weber appointed the impact on totality and time are different are absolutely ok.
The question and Weber's answer show that it is nonsense to apply production functions with diminishing, constant or increasing returns on an aggregate level. I think that this is also true even for a single enterprise. If the famous representative firms really produced according to a production function with diminishing returns, it is not understandable, why they would not split to have much more (representative) enterprises to get a better input-output relation.
By the way, there is no general answer to the question of the effect of an additional inhabitant. It depends...
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