The demographic dividend is a rise in the rate of economic growth due to a rising share of working age people in a population. This term is used interchangably with the term "demographic gift".[1] The demographic dividend happens when a falling birth rate alters the age distribution.[2] The falling birth rate creates a smaller young dependent population, with a larger number of older people who comprise the work force.[3] This creates a dividend or gift which facilitates more rapid economic growth and less strain on families.[4]
The demographic dividend has become increasingly important in part because the human population of the earth has grown enormously during the last three hundred years.[5] The demographic dividend usually occurs late in the demographic transition when the fertility rate falls and the youth dependency rate declines. During this demographic window of opportunity, output per capita rises. It has been argued that the demographic dividend played a role in the "economic miracles" of the East Asian Tigers[6][7]and that the economic boom in Ireland in the 1990s (the Celtic tiger) was in part due to the legalization of contraception in 1979 and subsequent decline in the fertility rate[8]. In Ireland the ratio of workers to dependents improved due to lower fertility but was raised further by increased female labor market participation and a reversal from outward migration of working age population to a net inflow. Africa, on the other hand continues to have high fertility and youth dependency rates, which contribute to its economic stagnation[9]. The magnitude of the demographic dividend appears to be dependent on the ability of the economy to absorb and productively employ the extra workers[10], rather than be a pure demographic gift.
Low fertility initially leads to low youth dependency and a high ratio of working age to total population. However as the relatively large working age cohort grows older, population aging sets in. The graph shows the ratio of working age to dependent population (those 15 to 64 years old, divided by those above or below this age range - the inverse of the dependency ratio) based on data and projections from the United Nations.
Several countries are currently often discussed in the context of demographic dividends, and India is one of those most discussed. The U.S. Census Bureau predicts that India will surpass China as the world’s largest country by 2025, with a large proportion of those in the working age category.[11]
Another way of looking at this phenomenom is through what is called the "sustainable demographic dividend", which argues that the long-term conditions of the economy rise and fall with the family.[12] This approach focuses on the crucial importance of marriage and fertility in maintaining long-term economic growth.[13] This focus on sustainability also emphasizes the relevance of the size and quality of the workforce, and the economic fortunes of the large sectors of a present day economy.[14]
There is a strategic urgency to put in place policies which take advantage of the demographic dividend for most countries.[15] This urgency stems from the relatively small window of opportunity countries have to plan for the demographic dividend when many in their population are still young, prior to entering the work force.[16] During this short opportunity, countries traditionally try to promote investments which will help these young people be more productive during their working years.[17] Whe countries don't manage their demographics carefully with consideration to these variables, there is an increased risk of social upheaval.[18]