The demographic dividend happens when the working-age population becomes larger compared to the dependent population (those aged 0-15 years and 60 years and above). This indicates that more individuals are capable of being productive, potentially leading to economic growth. As a result of changes in the age structure during the demographic transition, the ‘dependency ratio’—the proportion of non-working age individuals compared to the working-age population—decreases, creating an opportunity to generate economic growth.
However, this benefit is temporary because the larger pool of working age people will eventually turn into non-working old people.
- According to Economic Survey 2018-19, India’s Demographic Dividend will peak around 2041, when the share of working-age,i.e. 20-59 years, population is expected to hit 59%.
- India has 62.5% of its population in the age group of 15-59 years which is ever increasing and will be at the peak around 2036 when it will reach approximately 65%.
- India has one of the youngest populations in an aging world. By 2020, the median age in India will be just 28, compared to 37 in China and the US, 45 in Western Europe, and 49 in Japan.
- The working-age population in India, which includes individuals between 15 and 64 years old, has been larger than the dependent population—children aged 14 or below, as well as individuals above 65 years old—since 2018. This surplus in the working-age group is projected to continue until 2055, spanning a period of 37 years from its commencement.
- This transition happens largely because of a decrease in the total fertility rate (TFR, which is the number of births per woman) after the increase in life expectancy gets stabilised.
Advantages Associated with Demographic Dividend
- The improved economic growth resulting from increased economic activities due to a higher working-age population and a reduced dependent population will be directed in the following ways:
- Enhanced labor force productivity: A larger workforce potentially boosts overall economic productivity and output.
- Economic resource allocation: Increased fiscal space from the dividend enables the redirection of resources from child welfare spending toward investments in essential infrastructure and human capital development.
- Women’s participation in the workforce: Declining fertility rates often lead to increased participation of women in the labor force, presenting a new avenue for economic growth.
- Savings and investment: The prime working-age bracket coincides with the period of maximum savings, contributing to increased savings rates that can be channeled into investments and economic development.
- Emergence of a middle-class society: A demographic shift toward a larger working-age population often signifies the rise of an aspirational middle-class segment in society, impacting consumer behavior and economic dynamics.
- Demographic dividend has historically contributed up to 15 % of the overall growth in advanced economies.
- Japan was among the first major economies to experience rapid growth because of changing population structure.
- The country’s demographic-dividend phase lasted from 1964 to 2004.
- Rapid industrialisation and urbanisation because of higher number of employment seeking population that would force higher economic activities
- Rise in workforce: With more than 65% of working age population, India will rise as an economic superpower, supplying more than half of Asia’s potential workforce over the coming decades.
- Effective policy making: Fine-tuning the planning and implementation of schemes and programmes by factoring in population dynamics is likely to yield greater socio-economic impact and larger benefits for people.
Issues related with Demographic dividend
- Asymmetric demography: The growth in the working-age ratio is likely to be concentrated in some of India’s poorest states and the demographic dividend will be fully realized only if India is able to create gainful employment opportunities for this working-age population.
- Lack of skills: Most of the new jobs that will be created in the future will be highly skilled and lack of skill in Indian workforce is a major challenge. India may not be able to take advantage of the opportunities, due to a low human capital base and lack of skills.
- Low human development parameters: India ranks 130 out of 189 countries in UNDP’s Human Development Index, which is alarming.Therefore, health and education parameters need to be improved substantially to make the Indian workforce efficient and skilled.
- Informal nature of the economy in India is another hurdle in reaping the benefits of demographic transition in India.
- Jobless growth– There is mounting concern that future growth could turn out to be jobless due to de-industrialization, de-globalization, the fourth industrial revolution and technological progress. As per the NSSO Periodic Labour Force Survey 2017-18, India’s labour force participation rate for the age-group 15-59 years is around 53%, that is, around half of the working age population is jobless.
Optimum Population
- The relationship between the size, distribution, and structure of a country’s population and its natural resources, as well as the methods of production, is crucial. It determines whether an area is under- or overpopulated. When the number of people aligns with the available resources, a country is said to have an optimum population. Maintaining this balance requires continuous exploration of new resources and the development of alternative forms of employment to keep pace with population growth. If this balance is not maintained, it can lead to challenges related to resource scarcity or underutilization, impacting the overall well-being and sustainability of the population.If the population becomes too large then the “law of diminishing returns” begins to operate.
- This implies that up to a certain point an increase in the number of people working on the land leads to a marked increase in production. Once the optimum population has been reached, a further increase may increase production but at a decreasing rate, so that output per capita declines. As more people become dependent on the same resource base each individual will become poorer.
- On the other hand if there are not enough people to develop all the resources of an area its standard of living may remain lower than it could be, were its full potential realized.
- For example in terms of present day technology, Central Asia may be considered under populated. But in the past, Central Asia was inhabited by pastoralists who knew nothing of modern technology. The resources which they were capable of exploiting were often overstrained, so much in fact that the waves of Central Asian peoples invaded surrounding areas in search of land and spread as far as eastern Europe, India and northern China. Thus the region was over-populated during that period.
Under population and overpopulation therefore must be considered mainly in terms of the stage of development of the country concerned. An advanced country can be considered as one where agriculture is efficient, industry, communications, trade and commerce, and social services are well developed and the resources of the country are fully utilized. There is no real shortage of labour but unemployment is small.
FAQs
1. What is a demographic dividend?
- A demographic dividend refers to the economic growth potential that can result from shifts in a population’s age structure. It occurs when the proportion of working-age population (15-64 years) is larger than the dependent population (children and elderly), leading to increased productivity and economic growth.
2. How does a demographic dividend benefit an economy?
- A demographic dividend can benefit an economy by boosting productivity and savings, as a larger working-age population can contribute more to the workforce and generate higher levels of income. This can stimulate economic growth, improve living standards, and create opportunities for investments in education, healthcare, and infrastructure.
3. What are some issues associated with the demographic dividend?
- One issue is the potential for a “demographic window” rather than a sustained dividend. If appropriate policies are not in place to capitalize on the demographic transition, the window of opportunity for reaping the benefits may close, leading to missed economic opportunities.
- Another issue is the need for significant investments in education, skills training, and job creation to ensure that the growing working-age population is equipped with the necessary skills to contribute effectively to the economy.
- Additionally, if the economy fails to create enough jobs to absorb the expanding workforce, it can lead to unemployment or underemployment, undermining the potential benefits of the demographic dividend.
- Gender disparities in workforce participation and access to education can also hinder the realization of the demographic dividend, as it is crucial to ensure the full participation of both men and women in the labor market to maximize productivity.
- Finally, rapid population aging in the long term can reverse the demographic dividend and pose challenges such as increased healthcare costs and a shrinking workforce.
4. How can policymakers address issues related to the demographic dividend?
- Policymakers can implement strategies to improve education and skills training to enhance the employability of the workforce. This may include investments in vocational training programs, higher education, and lifelong learning initiatives.
- Creating an enabling environment for entrepreneurship and innovation can stimulate job creation and economic growth, absorbing the expanding labor force.
- Gender-inclusive policies that promote equal access to education, healthcare, and employment opportunities can help maximize the potential of the entire workforce, contributing to sustainable economic development.
- Long-term planning for population aging, such as reforms to pension systems and healthcare provision, can mitigate the challenges associated with an aging population and ensure the sustainability of social welfare programs.
5. How can countries measure the effectiveness of their demographic dividend policies?
- Countries can assess the effectiveness of their demographic dividend policies by monitoring key indicators such as labor force participation rates, unemployment rates, educational attainment levels, and GDP growth rates.
- Analyzing trends in productivity, income distribution, and poverty reduction can also provide insights into the extent to which demographic changes are translating into economic gains and improvements in living standards.
- Regular evaluations of policy implementation and adjustments based on lessons learned can help countries maximize the benefits of the demographic dividend and address emerging challenges effectively.
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