Demographic Dividend

A demographic dividend is the economic growth potential created when the working-age population becomes large relative to dependants. It arises during demographic transition as falling fertility lowers the dependency ratio, but it produces growth only when people are healthy, educated, skilled and productively employed.

How the opportunity arises

The dividend usually appears after mortality and fertility decline and before population ageing increases the old-age dependency burden. A favourable age structure can expand labour supply, production and the number of savers.

• A lower dependency ratio can increase household savings and permit greater public and private investment in education, health, infrastructure and productive capacity.
• The opportunity is temporary because the large working-age cohort eventually enters old age.

Conditions for converting potential into growth

Age structure alone is insufficient. The economy must build human capital and create enough productive employment to absorb the expanding labour force.

• Adequate nutrition, healthcare, school and higher education, and vocational skills are required to make young people employable and productive.
• Job creation through labour-intensive manufacturing, modern services, entrepreneurship and infrastructure enables workers to move into higher-productivity activities.
• A predictable business environment and investment in productive capacity help enterprises expand and employ new workers.
• Higher female labour force participation, gender equality in education and safe working conditions enlarge the effective workforce and raise household and national productivity.

Risks and international complementarities

If education, health and job creation lag behind labour-force growth, the potential dividend can become unemployment, underemployment or social stress.

• India's relatively young labour force and Japan's ageing society, technology and capital create complementarities in skills, investment, manufacturing and human-resource cooperation.