UNFPAState of World Population 2002
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Can Bring Economic Benefits

Toay’s largest-ever young generation will swell the working-age population in many countries over the next two decades. If they find productive work, there will be a one-time "demographic bonus" for development.

The recent shift to smaller families in much of the world, notes The State of World Population 1998 report from the United Nations Population Fund, opens a window of opportunity when workers will have proportionally fewer old and young dependants to support. If societies invest in health and education and job creation, the resulting economic gains will improve the overall quality of life and reduce the burden of supporting older populations in the future. But failure to create new jobs for growing populations, and to reduce existing unemployment, may lead to social unrest and instability.

In 1950, there were 1.9 people of working age (15-64) for every dependant under 15 or over 65; this ratio declined to 1.7 in 1965 as a result of the baby boom. This was followed, as the boom generation came of age, by a period of sustained increase which is expected to last until 2010, when the ratio is again 1.9. From that point on it will fall, as older populations grow, reaching 1.4 in 2050.

Several East Asian countries have already taken advantage of this "demographic bonus". Between 15 and 40 per cent of the growth of per capita income in East Asia over the last several decades can be attributed to a temporary bulge in the workforce as fertility declined swiftly. During 1965-1990, GDP per capita in the region grew annually by an average 6.1 per cent; demographic trends contributed an estimated 0.9 to 1.5 percentage points.

Asian countries invested their demographic bonus in health care and education. The Republic of Korea, for example, increased net secondary school enrolment from 38 to 84 per cent between 1970 and 1990 while more than tripling expenditure per secondary pupil. South America had a similar opportunity but missed it because countries failed to make similar investments.

Changing demographic age structures now present similar opportunities and challenges in South Asia, Southeast Asia, West Asia and North Africa. Sub-Saharan Africa, where fertility is still high, has yet to experience its workforce bulge.

In South Asia, for example, the ratio of working-age people to those under 15 or over 65 is projected to increase from 1.35 in 1990 to 2.13 around 2030 before starting to decline. Demographic factors could help raise GDP per capita between 0.55 and 1.25 percentage points—a demographic bonus similar to the one East Asia received during its period of economic ascendancy.

A one-time "workforce bulge" can propel growth anywhere. Its role in Europe in stimulating growth during the late 19th century and the early 20th century is currently being studied.

The long-term economic and policy environment is also critical for creating the necessary jobs; recent Asian experience demonstrates the importance of sound governance, economic policies and institutions to ensure that social investments are not wasted.

The recovery of the "Asian tiger" economies from turbulence and uncertainty will be helped by their past investments in education and health: the resulting lower mortality and fertility will reduce the need for future investments, and a more educated workforce will help economies revive.

The opportunity presented by the workforce bulge has a darker side. Between now and 2010, 700 million young people will enter the labour force in developing countries (more than the entire labour force of the developed countries in 1990). The International Labour Organization projects that more than 1 billion jobs will need to be created to accommodate these new workers and reduce unemployment. This daunting challenge cannot be met without continued progress in lowering birth rates and expanding education programmes.

A "brain drain" of talented workers migrating to industrialized countries could reduce developing countries’ gains from the demographic bonus. On the other hand, remittances sent by migrants bolster families, communities and national economies. Successful use of the demographic bonus in sending countries could accelerate development and reduce pressures to emigrate.

The industrial countries of Europe, Northern America and Japan face a different challenge. In these countries, the workforce bulge has already happened: fertility is already low and population growth slow or absent. But demographic change will not necessarily weaken their prospects if they improve productivity and adapt their economies to new demands.

Migration to these countries could increase the labour force and offset increasing numbers of dependent older people, but this would require policies to encourage migration which may not be politically feasible. In any case, migration would have to increase well above current levels to have the same economic effect as raising the age of retirement.

Increasing fertility to "grow" the workforce is not an answer. No national attempt to raise fertility has ever succeeded against a downward demographic trend. Women will not take kindly to calls to become more fertile in the public interest. Beyond appeals to patriotism, conventional tax incentives and grants for childbearing, it is hard to imagine pro-natalist policies which would not infringe on the basic human right to choose the size and spacing of the family. Even if such policies worked, they would have no effect on the workforce for 20 years—and the investments required in education, housing and health might outweigh any eventual advantages.

Some reduction in the pace of economic development can be expected after the demographic bonus is exhausted—early in the second half of the next century in many regions, perhaps later where fertility falls more slowly. If the bonus has been well invested, however, these smaller growth rates will be on a larger economic base, and they will still offer the prospect of higher living standards and better lives. A stable population will offer further opportunities for productive investment.

Failure to secure human development through better health and education could upset the smooth transition to lower fertility and a stable population. It would heighten the risk, for example, of an increase in HIV/AIDS cases. A five-fold increase in the number of children who have lost a mother or both parents to AIDS is projected by 2010. A wider epidemic could result in a smaller workforce and even higher dependency rates and further strain family systems of mutual support.

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