Demographic Dividend: Will it come to an end?

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Demographic bonus: Will it come to an end?

Santo Koesoebjono and
Solita Sarwono

The answer is “No”. The chance to gain a bonus/profit/dividend from the existence of a large working-age group is determined by that group’s education.

Education triggers higher productivity and economic growth as well as forming high-value human capital. As the working group grows older, it will not lose its skills obtained from a good education. People’s work experience will strengthen their competence.

The value of this group will therefore remain high, long after its peak of productivity. Members of this working group will provide their offspring with better education, yielding a generation with better potential human capital.

However, when a large working age population is poorly educated, the country will not be able to enjoy the bonus of this population development. With poor education, young people will experience difficulties entering the labor market and competing with job seekers at national as well as global levels.

The term demographic bonus has become popular in Indonesia recently. Politicians, government officials and scientists have mentioned and discussed the demographic bonus (demographic dividend) and its window of opportunity. Some say the window of opportunity will open soon; others say that it opened several years ago.

There are also those who argue that the window of opportunity is coming to a close. Discussions and debates generally focus on the start and the end period of reaping the demographic bonus, neglecting the issue of the conditions required for enjoying the fruit of this opportunity.

The World Bank’s report on Indonesia (2012) shows that for this country the window of opportunity will be in the 2010 to 2030 period. In the report, a graph shows the rising working-age population (15-64 years) whereas the proportion of the burden (for example, children under 15 years old and people older than 60 years old) is relatively small.

These relatively small youth and elderly populations are beneficial (for the large working-age group) as the country’s capital can thus be directed to economic development, which will result in higher productivity and stimulate economic growth.

The window of opportunity will be followed by an increasing demographic burden/dependency, particularly because of the ageing population, as at the same time, the working-age group will be on the decline.

The demographic bonus will end there. The idea is alarming. 

The worry is justified only when the inflow of the working-age population is well educated, highly skilled and can increase the country’s productivity and economic growth. But if the potential work force is poorly educated and not qualified, the country will forgo the chance of reaping a demographic bonus.

Education is essential for many reasons. It causes fertility to decline and produces a well-qualifi ed workforce
that stimulates higher productivity. 

Education generates fertility decline through the postponement of marriage, limiting the number of children and birth spacing. People are aware of the need to have healthy and well-educated children and of the high cost of raising children.

Parents work hard to give their children a good education. The impact of good education is long lasting and will be strengthened by work experience.

The effects of education are continuous. After passing the demographic-dividend period, people’s knowledge and skills will still be used and be of value rather than vanish.

Future generations will be better educated, ensuring continued high productivity and technological development.

An example of the result of continuous education was shown at the recent Hannover Exhibition in Germany.
It displayed new technologies and innovations as products of highly skilled human capital that will sustain economic growth in an aged society.

Many elderly people in Europe continue to be active and productive, sharing experiences with the younger generation and transferring knowledge to them, stimulating the development of technology and economic
growth.

Even if a country is endowed with a highly qualifi ed working population, its government should be able to provide employment.

Otherwise, the country will see a large unemployed well-trained workforce that in turn could create social unrest and an exodus of skilled people.

The country will then become an exporter of its skilled people, resulting in a big loss for the country as it has invested a lot in the people’s education.

A well-educated working population is able to continue to support economic growth in a country in spite of the aging population. It is common knowledge that in developing countries the pension system is still weak and deficient.

Most people have to continue working after they have completed their “formal” or “offi cial” job/service. After retirement, are those senior citizens suddenly worthless and is their education and experience no longer of any value?

Demographic data and analysis show that although the demographic-dividend period will pass, the demographic dividend will remain beyond the window of opportunity as a result of good education.

Even if the “official bell” for the start of the demographic-dividend period has not yet rung, governments should start providing good and up-to-date education to enable the potential working population to be equipped with new knowledge and technologies.

Santo Koesoebjono is an economist and demographer.
Solita Sarwono is a psychologist, public health educator and sociologist.
Both reside in the Netherlands.

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