Demographic Dividend

Introduction

• India witnessed consistent and moderately high economic growth

rates since 1980
• This has encouraged optimistic projections about India’s future
growth potential
• India has been witnessed the hindu growth rate of 3.5 to 6 percent
and now there are double digit projections
 Introduction: Assessment of the Projections
• The assessment is being done by identifying potential sources of the new
dynamism
• 1. Recent improvements in India’s merchandise export performance and
the growth of FDI attractiveness
• 2. New sources of growth in financial, software and information
technology-enabled services (ITES), with leadership performance in the
latter two
• 3. A third assessment - the demographic advantage that India currently has
relative to the developed countries and also countries like China
• In 2020, the average Indian will be only 29 years old, compared with the average age
of 37 years in China and the US, 45 in west Europe and 48 in Japan
• Labour inadequacy wont be problem for a higher growth trajectory
 Introduction
• According demographic dividend large and excess population is not a
problem as traditionally perceived
• It is a benefit from economic point of view
• Large population will increase consumption even if the PCI is less
• But limited resource will be under pressure due to the large size
• The conclusion then is that the growth of population has to be
controlled if economic growth has to be triggered and the quality of
life improved
 Demographic Dividend
• Age structure rather than the size of the population which matters
most according to recent views on population
• That is why India’s population is seen as advantaged, despite its large
size
• This has provided one more macroeconomic argument for
considering India as an emerging regional or global leader in the near
future in this process we could even displace China
• The demographic dividend is also expected to resolve the problem of
garnering surpluses (leftover money after consumption) over
consumption needed for investment
 Demographic Dividend
• A nation’s population can be divided into those in the labour force
(say, the 15-64 age group) and those outside it.
• Those outside the labour force will consume what is produced by the
labour force (workers)
• The dependency ratio would be among the factors influencing the
surplus available for investment after current consumption
• Hence, everything else remaining the same, the higher the proportion
of workers to non-workers, the larger would be the surplus.
• For given unemployment rates, the higher the ratio of those in the
labour force to those outside it, the larger would be the surplus.
 Effects of the Demographic Transition
• Nature of demographic transition leads to change in size and age
structure of the population of each country
• This is because death rates decline faster than the decline in birth
rates
• Later on life expectance improves due to higher income, improved
lifestyles and better and more expensive medical technology etc
• Birth rate reductions depend on the age of marriage and the fertility
rate. Both of these depend on the level of development to a far
greater degree.
 Effects of the Demographic Transition
• The relationship between death and birth rates and development has a
significant impact on both the population growth rate and its age
distribution.
• Initially, when infant mortality decreases and child survival improves due to
development, there is a generation boom, leading to a higher number of
young people in the population.
• However, as fertility rates decline with a delay, the baby boom generation
eventually reverses, resulting in a bulge in the younger age groups.
• This bulge gradually shifts upwards in the age structure.
• Consequently, there is a period when the working-age population (ages 15-
64) experiences a significant increase compared to the past or future.
• Eventually, this bulge moves into the old age bracket, which is currently
happening in developed countries, such as Japan.
 Implications for Growth
• Dependency ratio – shifting age structure have significant
consequences for economic growth
• Low dependency ratio – higher economic growth if there is an
inducement to invest surpluses
• High dependency ratio- low economic growth unless less portion of
workers output is enough to neutralize the demographic deficit
• To quote Bloom and Canning (2004: 22-23), “both empirically and
theoretically there is nothing automatic about the link from
demographic change to economic growth. Age distribution changes
merely create the potential for economic growth. Whether or not this
potential is captured depends on the policy environment.”
 Implications for Growth
• While east Asia’s macroeconomic performance is linked with the demographic
transition
• Miracle growth is due to demographic transition in East Asia but Latin America
has not witnessed any such miracle growth despite having the same demographic
transition during 1950s to 1980
• Demographic transition can lead to growth if there is a high savings rate and
enough investments in education and health to ensure the quality of the
workforce
• Savings have the strong link with demographic factors
• There are two steps through which this is achieved. First, increased savings are
seen as being due to rising life expectancy and the need to fund retirement
income.
• Demography also affects educational investments. Longer you live more you will
invest in education
 Implications for Growth
• Some argue that having a large, young population can lead to economic growth through open-
market policies and flexible labor markets.
• However, this argument doesn't always hold true.
• As Latin American countries failed despite all their efforts in that direction
• In contrast, East Asian countries succeeded in harnessing the demographic dividend, but they did
so by being more interventionist.
• They protected their industries and used government support and incentives to promote exports.
• To make the most of a demographic bulge in the working-age population, we need to consider the
dependency ratio as the ratio of non-workers to workers, accounting for both unemployment and
underemployment
• Demand-side constraints can limit economic growth, even with increased longevity and savings.
• Moreover, during periods outside the working-age bulge, high unemployment and insufficient
investment in education can hinder a country's ability to harness the demographic dividend when
it does occur.
The Indian Case
• total dependency rose initially
because of a rise in the child
dependency ratio and stagnation in
the old-age dependency ratio
• India had actually begun to reap
the demographic dividend around
the mid-1970s
• There are different projections of the future age structure of the
population
• United Nations population division’s population database expects the
youth population (15-24 age group) to begin to decline only by 2025
• Census suggest that the decline may set in earlier
Refer article for details
 Demographic Dividend and Employment
• Even to the extent that growth has occurred, it has not been such as
so to absorb the rapidly rising labour force being generated by the
demographic dividend
 Demographic Dividend and Employment

• As Table 3 shows, the period between 1993 and 2000 showed a dramatic
deceleration in employment generation, with the lowest rate of growth of rural
employment in post-independence history
• This in turn reflects an increase in labour force participation rates for both men
and women
• While aggregate labour force
participation rates have risen,
the same is not true of the
youth.
• As Table 5 shows, labour force
participation rates have fallen
quite substantially for male
rural youth, and not increased
for young women in rural
areas either
 Demographic Dividend and Employment
• t declines in labour force participation
among the youth result from their
delayed entry into the workforce, partly
because they are extending their years of
education
• However, Chart 3 indicates that this is
not the dominant reason. Except for rural
females, where the ratio was very low to
start with, there has been very little
increase in the proportion of those
reporting themselves as usually engaged
in education. For young urban females,
there was actually a decline in such a
proportion.
 Impact on Youth
• Table 6 reveals that youth
unemployment was
substantially higher than
unemployment across the
entire working age population,
and what is more, it also
increased across all categories
of young people – men or
women, rural or urban.
• So the youth are far more prone
to be actively seeking work and
not finding it.
 Question of Employability
• This naturally brings to the forefront not only issues related to the increasing
demand for labour but also the nature of the labour force and its
employability.
• In this context, the quantity, quality and relevance of education are all
crucial.
• Several indicators suggest that, during the liberalisation years, there has been
a setback on the literacy and education fronts, improvements in which are
seen as not just conducive but even necessary to exploit the demographic
dividend
 Question of Employability
• As Chart 4 shows, the spread of literacy has
been slow during the years of globalisation
and even in 2004-05 the country was far
short of achieving total literacy even in the
more developed urban areas.
• Indeed, the pace of improvement in literacy
rates appeared to have decelerated further
in the first part of this decade
• There is the further problem that even those
who have been educated find it hard to get
jobs, whether these jobs are appropriate to
their skills or otherwise.
 The Gender Dimension
• The principal problem is that participation in gainful economic activity is
typically less for young women than for young men.
• In addition, there are the problems of lower levels of access to education
and fewer opportunities for skill development for young women.
• The greater divergence between male and female youth labour
participation in urban as compared with rural areas, points to the role that
attitudes and perceptions play in the determination of the role of women.
• Their greater presence in the rural labour force is possibly the result of the
availability of opportunities around the home and farm, whereas their
relative absence from the urban labour market must be influenced by the
common view that women should not be exposed to workplace
environments and that the woman’s role is not that of a breadwinner but
of an (unpaid) home worker