These days there is much talk among pundits and policy-makers in the country about the impending demographic dividend in Bangladesh. What is missing in much of the discussion, however, is clarity about the concept itself, and the realisation that there is nothing automatic and guaranteed about the demographic dividend.
The demographic dividend-i.e., the boost in economic growth that takes place as the proportion of the working age population in the society increases-is the outcome of the interplay of two stylised economic facts.
First, economic development brings about demographic transition that moves a population from a stage of high birth and high death rates to one of low birth and low death rates. When a country transitions to low-birth rates, it experiences a rise in the share of its working-age population after a period of time.
Second, people in their working age save more than those that are dependent. This is an idea popularised by the life-cycle consumption theory. According to this theory, people's savings behaviour moves through different phases in their lives: they save in their working age and dissave when they are dependent because they are either too old or too young to earn an income.
This interplay of demographic transition and life-cycle savings behaviour can have a potentially profound impact on the economy. When a country achieves its demographic transition, it experiences a bulge in the working-age population. When this workforce is productively employed, it leads to higher income and higher savings. This, in turn, increases per capita investment and growth rate. Additionally, this combination of higher growth with a lower dependency burden can bring about an expansion of the middle class with a concomitant surge in domestic demand.
Economists agree that a significant growth of the East Asian economies can be ascribed to this demographic gift.
This demographic gift, as recent experiences of East Asia suggest, needs to be nurtured by strategic investments. One such area is health and nutrition to promote a healthy and productive workforce. Another area of investment is towards skills and education so that the young generation can not only contribute more productively to the domestic economy but also compete in the increasingly integrated global labour market. Thus, the economic benefit of the demographic dividend is the synergetic outcome of the expansion of the workforce and improvements in its human capital.
As is obvious, the success in reaping the benefits of the demographic dividend hinges critically on the ability of the economy to productively employ the workforce. However, economies differ in their abilities to generate employment. Besides strategic investments in human development, much of this ability depends on policies and institutions that include good governance, labour market flexibility and economic openness.
Where does Bangladesh stand? The country has almost 65 per cent of the population in its workforce (aged 15-64 years) and its age-dependency rate has declined over time. Apparently, the country is poised for a demographic gift. However, on closer examination, rather than a reason to rejoice, the situation invokes serious concern: the ability of the economy to create adequate and productive employment falls seriously short of requirements.
Between 2000 and 2010, both the total working age population and the total labour force increased by about 2.0 million annually in Bangladesh. However, total employment increased by only 1.5 million yearly. Though official statistics on the unemployment rate is low (4.5 per cent), it conceals the fact that there is considerable under-employment (17-34 per cent). The situation appears even more precarious when it comes to employment of college and university graduates.
According to a report by the Economist Intelligence Unit, the percentage of secondary school graduates enrolled in tertiary education has more than doubled between 2004 and 2011. Yet, this has not been accompanied by an adequate increase in employment for university graduates. Of these graduates, almost half were without jobs in 2012. There are many reasons for this high unemployment rate for the most educated segment of the labour force. Besides the quality of education, there are serious skills mismatches in the economy. But more fundamentally, it lacks the ingredients of a vigorous economy-such as good governance, strong infrastructure and an open and competitive environment.
Although the economy is growing at an annual rate of around 6.0 per cent-thanks to apparel and manpower exports and micro-credit-there are limits to long-term growth in a narrowly based, rent-seeking economy. In the absence of good governance and an economic level playing field, investments-both domestic and foreign-remain flat. The situation will not get better without substantial improvements in the investment climate, which seems to have suffered a setback-particularly, as far as foreign investments are concerned-by recent political uncertainties. And without a significant increase in the rate of investments, the employment situation will remain bleak, particularly for college and university graduates. Providing for food, education and health care of this unemployed workforce will constitute a huge demographic burden for the society. Rather than boosting savings, investments and growth, this will put the economy on its reverse gear, thereby seriously affecting further economic progress.
No doubt, the economy has achieved some notable successes in the past, but it would be naïve to make a linear extrapolation of the past into the future, simply based on exports of garments and apparels and workers' remittances. If the reserve army of the unemployed-to use a phrase of Karl Marx-continues to grow, the present situation may easily turn into a demographic nightmare, creating social and political upheavals. It is, therefore, unwise to think of demographic dividend as a gift like manna from the heaven; it is indeed the construct of good policies and institutions. The earlier the policymakers realise this and prepare for it, the better.
M.G. Quibria is Visiting Senior Fulbright Fellow at Bangladesh Institute of Development Studies and Barkat-e-Khuda is Professor of Economics at University of Dhaka. mgquibria.morgan@gmail.com
What demographic dividend?
M. G. Quibria and Barkat-e- Khuda | Published: April 09, 2014 00:00:00 | Updated: November 30, 2026 06:01:00
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