SHAPING THE FUTURE HOW CHANGING DEMOGRAPHICS CAN POWER HUMAN DEVELOPMENT

38
Having fewer
dependents on
working-age
people encourages
accelerated
economic growth
come at a hefty price, such as through health-endangering
air pollution and the generation of
greater amounts of waste.
The Republic of Korea provides an example
of managing demographic transition to advance
human development. As the country’s birth rate
declined in the mid-1960s, elementary school
enrolment fell, which released funds. The Government
invested these in improving the quality
of education at higher levels to equip the growing
working-age population with marketable skills,
and fostered economic growth to create more
jobs through strategic investments. Essentially,
the Republic of Korea used its demographic
window to educate its population, including
women, and to integrate them successfully into
the labour market, leading to rapid economic
growth and higher standards of living across
its population.
Broadly speaking, to reap demographic dividends
and transform these into greater human
development, patterns of public investment need
to respond to demographic changes. Countries
with a very youthful population need to invest
more in schools; those with a large working-age
population need to create large numbers of decent
jobs; and those with an extensive elderly
population need to invest more in health, transportation
and other public facilities, as well as
old-age pension systems.
TWO TYPES OF DIVIDENDS
Demographic change offers two potential dividends,
which can be significant. 47 The first
demographic dividend occurs when fertility
rates fall and the labour force grows more rapidly
than the dependent population. This builds on
a simple equation: more labour equals more
economic output, assuming no major drag from
unemployment or underemployment.
A second demographic dividend unfolds as
transition proceeds if the larger number of workers
is also more productive. This comes about in
part through investments in human capabilities,
such as through health and education, that, for
instance, allow people to do more skilled jobs.
Over time, they can then earn more, save more
and acquire more assets such as homes, land
and businesses.
Both demographic dividends can translate
into economic and human development gains.
They are roughly sequential, with the first
lasting for three to five decades depending on
the speed at which fertility declines. The second
begins later, can be sustained for a longer
period and may be larger. Some overlap may
occur, and neither dividend is automatic, with
demographic transition merely opening a window
of opportunity.
The first dividend declines as population
ageing sets in, and links to economic growth
then tend to diverge for the second dividend.
High-income countries have experienced this,
and soon many middle-income countries will do
so as well. Expenditure on health care rises as
infectious diseases retreat and chronic, degenerative
non-communicable diseases dominate,
for instance. The ability to manage changes
like these rests largely on the shoulders of the
workforce, and its capacity for productive work,
backed by a sufficient supply of decent employment
options. Even if the number of workers
falls relative to the number of dependents, they
may be much more productive than a larger, less
educated workforce. 48
MEASURING IMPACTS
OF DEMOGRAPHIC CHANGE
Early thinking around the impacts of demographic
transition focused heavily on the contributions
of the demographic dividend to economic
growth. As far back as 1958, a study of India and
Mexico found high costs from large shares of
young and old dependents in a given population.
Savings rates for families with a large number of
children were lower, and requirements for social
spending on health, education and so on were
great. Productive capital per person was more
limited. The study suggested that declines in
fertility, by lessening dependency burdens on
working-age people, could free them for activities
that promote economic growth. 49
In the last two decades, a number of studies
have estimated demographic dividends. One covering
the years from 1965 to 1990 suggested that
25 percent to 40 percent of East Asia’s economic
miracle, defined as an increase in per capita
income, could be attributed to demographic
transition. 50 Another on China calculated that,
from 1980 to 2000, changes in age structure