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What is Demographic Dividend? Meaning, Types, Causes, Etc. in Detail
IMPORTANT LINKS
Unit 9 - Environmental Economics and Demography
Demographic dividend occurs when the proportion of working people in the total population is high, because this indicates that more people have the potential to be productive and contribute to growth of the economy. Demographic dividend is just economic growth and development resulting from a change in the age structure of the population. When there is a high percentage of working-age individuals in the population, there is a demographic dividend because more people have the potential to be productive and support economic growth. The economic growth that can occur when a nation has a higher proportion of working-age individuals than dependents (such as children and the elderly) is known as the demographic dividend. If there are adequate jobs and high-quality education, this can result in increased production, higher wages, and improved living standards. A nation must make investments in job development, education, and health in order to reap the demographic dividend.
Demographic dividend is a vital topic to be studied for the economics related exam such as the UGC NET Economics Examination.
In this article the readers will be able to know about the following:
- Demographic Dividend Meaning
- What is Demographic Dividend in India?
- How does Demographic Dividend Work?
- Types of Demographic Dividend
- Causes of Demographic Dividend
- Significance of the Demographic Dividend
Demographic Dividend Meaning
Demographic Dividend refers to the potential economic growth a country experiences due to its favorable change in age structure. It happens mostly as the proportion of working-age individuals aged 15-64 years is greater in relation to dependent age groups, which include children and elderly people. These are occurrences during a phase of decline in fertility and mortality rates, giving rise to a temporary increase in the population at working age and contributing to economic productivity.
What is Demographic Dividend in India?
The United Nations Population Fund (UNFPA) defines the demographic dividend as the potential for economic growth brought about by a shift in the population's age distribution, with a greater proportion of people in the working-age group (15–64 years old) than in the non-working-age group (less than 14 years old and over 65 years old).
How does Demographic Dividend Work?
The term "demographic dividend" describes the potential for economic growth that might arise from changes in a nation's population age distribution, particularly when the proportion of people in the working age group rises above that of people in the non-working age group. If the proper investments and policies are made, this change presents a chance for faster economic growth.
- Age Distribution of the Population: A lower percentage of dependents (elderly and children) relative to the working-age population (15–64 years) results from declining fertility rates.
- Growth in the Workforce: More people who are of working age are available to work, which could boost economic output and productivity.
- Investment and Savings: Families and governments can save more money when there are fewer dependents, which allows them to make larger investments in health, education, and infrastructure.
- Development of Human Capital: The workforce is more productive and able to support economic growth when education and skill development investments are made.
- Women's Employment Involvement: further women may enter the workforce as fertility rates decline, which would increase household incomes and economic output even further.
- Environment of Policy: Strong governance, job creation, healthcare, and economic policies that promote employment and inclusive growth are all necessary to achieve the demographic dividend.
- Momentary Possibility: The dividend has a time limit; if it is not used effectively while there is still time, the nation may have to deal with the problems of an older population without enjoying the financial gains.
Types of Demographic Dividend
Different sorts of demographic dividends can be distinguished according on how a nation gains from shifts in its population composition. Each category demonstrates a different way that an expanding working-age population might contribute to economic growth.
First Demographic Dividend
When the number of persons of working age increases more quickly than the number of dependents, this happens. If jobs and resources are properly handled, it opens the door to increased economic output.
Second Demographic Dividend
This occurs as people get older and begin to save more for the future. Even after the working-age population stops growing, the economy can continue to thrive with the support of these funds for investments.
Education Dividend
A nation's young people become skilled workers when it invests in their education. Better jobs, more incomes, and more robust economic growth result from this.
Health Dividend
More people are able to work and fewer days are wasted due to illness when the population is healthy. Good healthcare boosts the economy and makes workers more productive.
Gender Dividend
The economy gains when more women enter the workforce and are given equal opportunity. National productivity and household earnings rise when women are empowered.
Causes of Demographic Dividend
Changes in a nation's population composition, particularly when the proportion of working-age individuals increases, are the cause of the demographic dividend. These shifts are typically brought about by greater health, fewer births, and increased access to education and work opportunities.
Declining Fertility Rates
The number of dependents decreases as families begin to have fewer children. This raises the proportion of adults who can work and enables more funds to be allocated to each child.
Improved Healthcare
By lowering adult and child mortality rates, improved healthcare enables more people to enjoy longer, healthier lives. A stronger and more effective staff results from this.
Longer Life Expectancy
People can work and support the economy for longer as they live longer. A longer lifespan also promotes retirement savings and investments.
Population Growth in the Working Age Group
An increase in the population between the ages of 15 and 64 increases the labor supply. Economic growth and increased productivity are the results of having enough jobs available.
Investment in Education and Skills
Young people become competent and effective workers when they obtain quality education and job training. More productivity and higher pay are possible for skilled personnel.
Women's Employment
Household income rises as more women pursue education and enter the workforce. Additionally, this strengthens the nation's economy as a whole.
Significance of the Demographic Dividend
The demographic dividend refers to the economic opportunity that can come as a result of a country's positive change in its age structure, hence shifting towards a more significant proportion of its population of working age with respect to dependents. This demographic shift, mostly caused by falling fertility rates and improved healthcare, can generate major economic dividends if utilized effectively. Understanding demographic dividend is therefore very critical to policymakers and planners in harnessing this potential for economic growth and development while addressing its challenges.
Economic Growth and Productivity
The first significance of the demographic dividend is that there is potential for increased economic growth and productivity. With an increase in the working-age population, most countries can have high labor force participation rates, which could potentially create greater economic output and efficiency. Such productivity enhancement could mean higher economic growth and a more resilient economy. However, to exploit such potential, it is essential that the working population ought to be suitably skilled and gainfully employed.
Lower Dependency Ratios
The demographic dividend reduces dependency ratios, defined as the ratio of dependents—children and elderly—to the working-age population. A lower dependency ratio translates to fewer people depending on social services and economic support from the working-age population. This reduction can relieve financial pressure on public resources and allow for greater investment in economic development and infrastructure. This also means that more resources can be allocated to productive investments rather than supporting dependent populations.
Increased Savings and Investment
A higher percentage of working-age individuals can raise the level of savings and investments. With an increase in workers and, therefore, earners, there are higher chances of an increase in the rate of savings, making more capital available for investment. Increased domestic savings and investment can drive growth through the funding of infrastructure projects and business expansion, as well as upgrading technology. More capital investment increases productivity and is therefore conducive to long-term economic growth.
Human Capital Development Will Be Better
A demographic dividend has resulted in a greater emphasis on investment in the development of human capital. But the full benefit from a larger working-age population can be reaped only if a country pursues education, vocational training, and healthcare. Only then will increasing workforce skills and health lead to increased productivity and innovativeness, ensuring that the working-age population is able to effectively contribute to economic growth. It is essential to invest in education and training of the workforce to keep up with the demands of an increasingly changing job market.
Policy and Planning Implications
Another area of the demographic dividend is its importance that comes into play in matters of policy and planning. Policymakers should develop policies aimed at stimulating employment opportunities, economic growth, and social well-being if the advantage accruable from demographic dividend has to be utilized fully. Effective planning and policy measures can offset the negative effects of demographic change by confirming adequate job opportunities and social stability. In other words, investment in infrastructures, health care, and education will promote the demographic dividend and further assure sustainable development.
Conclusion
The demographic dividend is a chance for enhanced growth and development, mainly in countries where demographic changes in age structure are positive. An increasing percentage of the workforce enables a country to raise productivity and accelerate economic growth. However, for this demographic dividend to be translated into economic growth, investments in education, employment opportunities, and health services must be effective enough to exploit the window of opportunity provided by the working-age population. It calls for strategic planning and policy implementation to maximize this demographic shift, ensuring sustainability of economic gains and broad sharing of the same.
Environment as a public good is a vital topic per several competitive exams. It would help if you learned other similar topics with the Testbook App.
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Major Takeaways for UGC NET Aspirants
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Demographic Dividend Previous Year Questions
- The phenomenon of ‘demographic dividend’ is related to which of the following?
Options. A. An increase in the sex ratio
- An increase in the share of female population
- A decline in the TFR
- An increase in the share of working age population
Ans. D. An increase in the share of working age population
Demographic Dividend FAQs
What is demographic dividend?
A demographic dividend refers to the economic growth potential created by a country's life phase when it has a large proportion of its population in the working age bracket, usually 15-64 years old, compared with other dependent age groups, namely children and the elderly. This can increase productivity potential and economic growth if the working-age population is absorbed productively into the labor force.
How does a demographic dividend come about?
A demographic dividend typically occurs during a period of falling fertility rate with a country and falling mortality rates. When birth rates fall, the proportionate number of children and dependants falls in comparison with the working population. That is where the shift, therefore, creates a temporary supply in the labor force, a time that presents a real opportunity for economic growth and development.
What are the critical factors necessary to take advantage of a demographic dividend?
To harness a demographic dividend, a country must at least invest in the following five areas: education, health care, employment and economic policies.
What are some of the challenges that could be faced in harnessing a demographic dividend?
Challenges of harvesting a demographic dividend: Some of them are as follows: - job creation, education and skills development, economic inequality, healthcare and social services
How long does demographic dividend last?
The demographic dividend is typically a transitory period that lasts as long as favorable age structure prevails. Priority may turn towards management of the economic and social effects of aging, as the population ages and the elderly proportion increases, tapering off the demographic dividend phase. The length of the demographic dividend period may vary across countries in line with its demographic trends and policy responses.