Demographic dividend and transition
Demographic dividend
The term “demographic dividend” (DD) refers to the accelerated economic growth that a country can achieve when it has a low dependency ratio or, in other words, when the proportion of its population that is of working age is greater than the proportion of its population that doesn’t work (e.g. children and the elderly). This population structure frees up household and state resources that would otherwise be used to support dependent groups. These resources can then be invested to improve productivity and to generate economic growth.
Demographic transition
The population structure associated with a DD is a natural stage of the demographic transition, which is when countries change from having high birth and death rates to having low birth and death rates. The first stage of the transition is typically a fall in child mortality due to improvements in healthcare, nutrition and overall living standards. This causes population to grow as more and more young people survive childhood, eventually resulting in a society with a large working age population. This stage is followed by a fall in birth rates. The point after this fall, where few children are born but before the large working age population has reached retirement age, is the point at which a DD can be obtained. Beyond this point, the size of the working age population relative to dependents will decrease, as improvements in life expectancy allow people to live longer after retirement.
When a country’s labour force grows more rapidly than the people dependent on it, there is an increase in the availability of resources, at both domestic and state level, which can be invested to create a more productive economy.
For example, people with fewer children or elderly relatives to support will find themselves with more disposable income. This income can be invested in activities such as improving nutrition, pursuing education and acquiring new skills — all things which can help make people more productive. This income can also be invested in businesses, thereby helping to encourage economic growth. Similarly, having fewer nonworking people to support frees up resources for states to invest in health, education, enterprise and also other productive investments such as infrastructure.
Furthermore, because women have historically been responsible for providing care for children and elderly relatives, a low dependency ratio gives women more free time which they can use to pursue education and to participate in the labour force. Thus a low dependency ratio can also boost economic growth by allowing economies to significantly increase the size of their workforces.
Important points to achieve demographic dividend
Some argue that simply having a large workforce is sufficient to achieve a DD, but this is not the case, as having a large supply of labour merely provides a window of opportunity. To achieve a DD, and make the most of this opportunity, countries must create the conditions set out below:
Low fertility rates
Without a fall in fertility rates, a country’s working age population will have to support large numbers of children, thereby preventing women from entering the workforce and limiting the resources available to households and states to spend on productive investments. According to the UN, under such conditions, “countries will have a difficult time investing in the human capital needed to secure the well-being of its people and to stimulate economic growth.”1 In order to lower fertility rates, governments can take a number of different measures, but the two most important methods are increasing access to family planning services and improving girls’ access to education.
To lower fertility rates, governments must invest in sexual and reproductive health and ensure that everyone who needs family planning services can access them.
Healthy and educated population
Economic growth requires increasing a country’s productivity. Simply having a large working age population relative to dependents will not provide this increase. It can, however, help make resources available that households and governments can invest to boost productivity. One of the most important productivityenhancing investments that they can make is investing in education.
Education and training are required to help people become better-skilled workers, but also to help workers learn new skills and to adapt to new businesses and a rapidly changing industrial environment. If countries cannot implement education policies that help workers adapt to labour market needs, then they will be unable to move away from low-value-added labourintensive production, and unable to develop new, diverse and more productive industries.
Female labour force participation
Accelerated economic growth associated with a demographic dividend is, in part, based on women’s increased participation in the labour force. In order for this to happen, states must create a social and legal environment in which women are able to pursue education and to work. If women are, for example, prohibited from obtaining employment by legislation, or compelled by custom to only work in the home, then countries will not be able to achieve a dividend dividend.
One very important way to enhance women’s empowerment and to create a more gender equitable environment is to lower fertility rates through the methods outlined earlier, as this frees up time and money which women can use to pursue education, to enter the labour force and to participate in public life. It is for this reason that women’s empowerment is often inversely correlated with fertility rates.
Positive investment climate and appropriate infrastructure
In order to reap the economic benefits of a low dependency ratio, female participation in the labour force and a large, healthy, educated working age population, states must create an environment that encourages investment and stimulates job creation.
In order to do so, they must develop appropriate infrastructure, including financial infrastructure. This is because without, for example, transport systems and reliable banks, it will be very difficult for businesses to operate. Similarly, governments must also develop reliable legal institutions to encourage investment and business growth. This is because without adequate laws and legal systems, people will be hesitant to invest, out of fear that contracts will not be honoured.