Demographic Dividend and Dependency Ratio

A demographic dividend is the potential acceleration of economic growth when the working-age share of a population rises relative to the dependent share. The dependency ratio measures the dependent-age population relative to the working-age population, usually per 100 working-age persons. A favourable age structure creates an opportunity, but gains arise only when people are healthy, skilled and productively employed.

Age structure and measurement

Populations are commonly divided into children, working-age persons and the elderly, although exact age limits vary across statistical conventions.

• The total dependency ratio equals the dependent-age population divided by the working-age population, usually multiplied by 100.
• It combines the child dependency ratio and the old-age dependency ratio.
• Age-based dependency is only an approximation because some working-age persons are not employed, while some elderly persons continue to work.

How the dependency ratio shapes the dividend

A falling dependency ratio means that, potentially, fewer dependants must be supported by each working-age person. This can increase output per person and create fiscal and household resources for development.

• A larger effective labour force can expand production when sufficient productive employment exists.
• Lower dependency burdens can permit greater household saving and higher investment in each child's health and education.
• Higher savings can support capital formation when an effective financial system channels them into productive investment.
• Lower fertility and care burdens can facilitate greater participation of women in education and paid work.
• A larger employed population can broaden the tax base, while population ageing eventually raises old-age dependency and expenditure needs.

Conditions for realising the potential

The dividend is not automatic. If job creation and human-capital formation lag behind labour-force growth, a youthful population may instead experience unemployment, underemployment and low productivity.

• Quality schooling, vocational education, nutrition, healthcare, sanitation and reproductive health services must build human capital.
• Agriculture, manufacturing and services must generate productive and reasonably remunerative employment, supported by infrastructure, entrepreneurship and credit access.
• Women's education, safety, mobility, asset ownership and suitable working conditions must enable higher female labour-force participation.
• Macroeconomic stability, effective governance and predictable policies must encourage investment and improve matching between workers, skills and jobs.
• Social protection and pension systems must prepare for rising old-age dependency after the demographic window narrows.