What exactly is the demographic dividend?
When a developing country reduces child mortality, it experiences a
population explosion in which the proportion of dependants to workers rises.
This is a sort of egative dividend — workers have to support a much higher
proportion of dependants, depressing per capita income. But in the next phase
the birth rate falls sharply, even as the original baby boomers enter the
workforce . So, the proportion of workers rises sharply, even as the proportion
of dependants falls. In many countries, the ratio of workers to dependents goes
from 40:60 to 60:40, giving a huge boost to per capita income.
Demographic Dividend
Demographic Dividend is the economic benefits that derive from
demographic change. It is a population bulge in the working age category. It
occurs when a falling birth rate changes the age distribution of a population
so that fewer investments are needed to meet the needs of the youngest age
groups and resources are released for investment in economic development and
family welfare. At this stage, there are relatively more adults in the
population of the productive labour force. By demographic dividend, we mean a rise in the rate of
economic growth due to a rising share of the working age population. It may
occur only once during a demographic transition and lasts for just a few
decades.
Demographic dividend is essentially due to 2 factors:
(a) Declining birth rate and
(b) Improvement in life expectancy
Demographic Transition
Declining mortality is one of the determinants of demographic
transition. Demographic transition refers to the transition from high birth and
death rates to low birth and death rates as a country develops from a
pre-industrial to an industrialized economic system. Experience worldwide
suggests that demographic transition typically takes place from largely rural
agrarian society to a predominantly urban industrial society. It is a shift in
a population from a situation of high fertility and high mortality to a new
situation where fertility and mortality are low.
Demographic Windows of Opportunity
It is defined to be that period of time in a nation’s demographic
evolution when the proportion of population of working age group is
particularly prominent. This occurs when the demographic architecture of a
population becomes younger and the % of people able to work reaches its height.
UN population department has defined the windows of opportunity as ‘period when
the proportion of children and youth under 15 years falls below 30% and the
proportion of the people 65 years and older is still below 15%’. Typically, the
demographic windows of opportunity last for 30-40 years depending upon the
country.
How Does Demographic Dividend Help?
Demographic dividend is delivered through several mechanisms. These
are mentioned here under.
1. Labour Supply:
The country’s economic boom depends on a young and productive labour
force. The children born during periods of high fertility finally leave the
dependent years and can become workers. Women now have fewer children than
before. They are better educated than older cohorts. They are not confined now
to their home only. Women are employed in jobs outside of the home. So they are
productive in the labour force. This force plays a pivotal role in helping any
country’s economy to take off.
2. Savings:
The demographic transition affects the savings, which in turn affects
the prospects for investments and growth. Working-age adults tend to earn more
and can save more money than the very young. Personal savings grow and serve as
a partial resource for industrial investments that fuel economic growth. As the
number of dependents decreases individuals can save more. This increase in
national savings rates increases the stock of capital in developing countries
and leads to higher productivity as the accumulated capital is invested.
3. Human Capital:
The demographic transition begins with changes in mortality that
results in a population that lives longer and stays healthier. A longer life
expectancy causes fundamental changes in the way that people live. Decreases in
fertility rates result in healthier women and fewer economic pressures at home.
This also allows parents to invest more resources per child that leads to
better health and educational outcomes. Participation of women in the labour
force enhances their social status and personal independence. A society, which
is experiencing a demographic dividend, is certain to experience deep-rooted
changes in its culture.
4. Increasing Domestic Demand:
The increasing domestic demand is brought about by the increasing GDP
per capita and the decreasing dependency ratio.
Current Scenario –
· Currently, the supply of skilled manpower in
India is approximately 3.4 million. According to the ILO, there will be a
demand for 500 million skilled workers in India by 2022. A wide gap of 496.6
million skilled workers needs to be filled in eight years.
· With one of the youngest populations in the
world and a large pool of young English-speaking people, population
demographics favour India.
· By 2022, the average Indian’s age would be 29,
compared to 37 for China and the US, and 45 for Western Europe. India has the
potential not only to meet its own manpower needs but it can also cater to the
manpower demand of other nations.
· The second point is that as young people get
more educated, they will not want to work in agriculture (currently the biggest
employer — it engages half the workforce).
· They will want semi-skilled/ skilled jobs in
construction, which currently employs 12 per cent of the workforce and is
exhibiting the fastest growth.
· The third point is that a rising share of those
educated, at least up to the secondary level, will be girls. The labour force
participation rate for women in India is one of the lowest in the world. This
is set to change, provided appropriate non-agriculture jobs exist, such as in
garment manufacturing or modern services.
· If investment in rural and urban infrastructure,
housing and rural public works is sustained, the unskilled who leave
agriculture will get absorbed in construction, as they have been for the last
decade or more. But the first three challenges are much more serious.
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