What is demographic dividends?
Demographic dividends refer to the growth in the nation’s economy resulting from the change in the age structure of a country's population. This shift happens because of the decline in fertility and mortality rates.
Demographic Dividends Explained
Industrial countries have largely completed the demographic change, a shift from a rural agricultural society with increased fertility and mortality rates to an urban commercial society with low fertility and mortality rates. In the early stages of this transition, fertility rates drop, leading to a decline in the dependency ratio, which is the ratio of the population that is too young or too old to work. This temporary growth in the labor force relative to the dependent population creates a demographic dividend or a window of opportunity for accelerated economic growth.
During the demographic dividend period, nations can fund more resources in economic development and family welfare, which can lead to higher per capita incomes. This period can last for five decades or more, but it eventually comes to an end as lower fertility declines, the growth rate of the labor force, and advancements in old-age mortality lead to a growing population.
However, a second demographic dividend is possible. A population focused on older working ages and fronting an extended period of retirement has a strong incentive to accumulate assets unless it is confident that families or governments will provide for its needs. These additional assets can be invested domestically or abroad, which can boost national income.
In short, the first demographic dividend delivers a temporary boost to economic growth, while the second dividend can recast this boost into greater assets and sustainable development. However, these outcomes are not automatic and rely on the implementation of effective policies. Hence, the demographic dividend period is a window of opportunity, not a guarantee of improved standards of living