The Demographic Transition poses economic and social challenges at each stage.
The Demographic Transition poses economic and social challenges at each stage.
Young populations are typically rapidly-growing because the birth rate is high. The large number of children set to approach childbearing age means the birth rate will be high for some time. In this context, and especially if the economy is only beginning to modernize, loanable funds may be scarce and interest rates may be high. The capital stock may not be able to grow as quickly as labour, so worker productivity may be low.
Young populations face high young dependency. Governments and parents must budget for housing, schools, opportunities, and early childhood vaccinations.
The Demographic Dividend
The Demographic Dividend is possible when society is experiencing a drop in the Total Dependency Ratio. This typically occurs when the birthrate begins to fall and there are not yet many older adults needing care. At this point the working-age population and its government have an opportunity to invest their savings into infrastructure, research, and other productivity enhancements.
If jobs are available, banks are accessible and safe, inflation is low, and savings can be channeled into productive investments, this will be a time of economic growth. Policies that support this outcome are policies that make it easy for businesses to become established, get loans, and hire workers. The labour force needs to be healthy and have the necessary knowledge and skills.
With so much competition for jobs, young workers face more economic stress. Wages may be low due to the large labour supply or due to low productivity (if capital is scarce relative to labour). If young peoples’ expectations are not realized, they may become frustrated. There are more potential recruits for the army, and there are also more young people ripe for radical politics and tempted to act out their frustration.
The time of Demographic Dividend for today’s economically developed nations was between the mid 1960s and the early 2000s. While these countries may still have a large fraction of their population between the ages of 25 and 64, their opportunity to collect a Demographic Dividend is fading. Figure 17-0 show us that Europe, North America, Australia, and New Zealand, as well as East and Southeast Asia, are experiencing decreases in the fraction of the population that is of working age i.e. increases in total dependency. By contrast, the rest of the world is experiencing falling total dependency.
As indicated in Figure 17-0 above, Latin America, the Caribbean, North Africa, Central Asia, Southern Asia and Western Asia will achieve roughly their projected maximum L/N (fraction of population working) by 2050. Sub-Saharan Africa and Oceania will need more time than that to achieve a high L/N and hopefully experience the Demographic Dividend, because fertility rates and child dependency are still high there.
Morné Oosthuizen (2019) took a close look at South Africa’s age structure in the year 2015. As you mig