First of all, let's all be honest with ourselves. HOI3 abstracts a ton of things that were very important in the period. The fact that there is 1 resources called "rares" instead of 20 or more rare non-interchangeable resources required to run IC. Nickel? Who needs nickel? I just need rares, so the Petsamo nickel mines in Finland are irrelevant beyond their production of something called "rares." Germany's ability to stockpile "rares" in mass quantities from just a few sources belies a much more complicated resource situation. (Tungsten only grants a bonus when present, not a penalty when you don't have it?)
Manpower is the same way. It's clear that manpower is not linked to population in any direct way. Brigades with the exact same number of troops have widely different manpower costs, so you can't say manpower has anything to do with demographics. Furthermore, IC does not use manpower. I've said it a thousand times: argue about IC-whoring all you want. It doesn't change the fact that the USA or Germany can both double their effective GDP in the time frame of a single game by building IC and spamming IC techs. And yet, not a single unit of manpower is used up. It's like the Terminator went back in time to Nazi Germany and said, "Hire me in a factory if you want to live." No one ever has to choose whether to put workers in factories or make people in to soldiers. Even Vic2 has a mobilization mechanic.
Furthermore, manpower is constantly generated. While there is a peace-time manpower rotation mechanic (which, at Volunteer Army, is pretty harsh), to be perfectly honest, manpower is kind of like resource stockpile. It accrues more of the resource (in this case, manpower) over time based on the provinces it is harvested from. You spend it when you build divisions, but note the difference. Real demographics might give you a range of persons you can conscript at a certain time. In HOI3, I can game conscription laws to "harvest" more manpower before the war. The number of people ages 18-39 is irrelevant. What matters is the base manpower of your provinces and the rate at which you harvest it. It may not seem like a lot, but consider how much more manpower the USA can "harvest" if it cheats or exploits the rules to allow for 3 year draft in 1936. (Note: USA issues with laws are one reason they get a manpower buff upon joining the war.)
While I can't speak for the Devs, my game-reviewer sense tells me that the game was designed originally around the concept of using manpower as the limiting factor, not IC. The reason is because limiting IC makes nations less fun to play by putting 99% of units out of reach. Instead, most minors can field small numbers of really nice infantry, special forces, some planes, tanks, and whatever else. In the old versions of the game, there was no LL, so all countries were "balanced" in such a way that they had enough IC to do interesting stuff, while having manpower limits so that Germany or another major under AI control could beat them easily. (Poland is the big one here, with so little manpower that it can barely mobilize existing units.)
If HOI3 gets another expansion, I will lobby for a rethinking of manpower because we have LL now. You could cut all IC in minors by 30%, but boost their manpower up. That way, they can say, "Hey, USA, we want to join the Allies. We have 400 manpower we can't spend because we have 5 IC a day. If you could donate 15 IC a day to us, we could really contribute to the war."