Demographic Dividend Analysis

The attitude of demographers and economists about the role of population in economic development has undergone a dramatic change in recent years-from a pessimistic to an optimistic view. Earlier many scholars believed that rapid growth of population puts a constraint on faster growth by diverting resources from investment to consumption. The more recent view holds that the process of demographic transition resulting from a fast decline in mortality rates and a slower decline in birth rates creates a population bulge initially in the younger age group, but creates a window of opportunity later when the young join the work force. The demographic dividend hypothesis relies on the changes in the age structure of population leading to a rise in

Firstly, demographic transition adds to the labour supply as a larger number of young people join the working age groups. Moreover, more women are likely to enter the workforce as family size declines. Secondly, the demographic transition is supposed to encourage the growth of savings as the working age people save more as compared to the young and the old consume more than they produce. The increased private household savings provide the capital accumulation needed to finance growth. Finally, the demographic transition is supposed to have significant effects on investments in human capital. Higher life expectancy brings encourages people to investment more in education of their children. Thus, the new work force is younger, healthier and more productive contributing further to economic

Higher proportion of people in the working age groups does not imply that all of them will actually join the working force and contribute to national output. The expected increase in female work force following decline in fertility rate may not come about. In India there have been little changes in the work force participation rates in the last three decades. In 2004-05 only 32.7 per cent of rural females and 16.6 per cent of urban females were actually in the work force. The latest NSS round for 2011-12 shows a decline in the FWPR to about 25 per cent in rural areas and about 16 per cent in urban areas. It may further decline in the coming years as a result of the income effect as poor women may withdraw from work force as household incomes rise. Thus, a sizeable part of the demographic dividend may disappear if women do not join the work force as demographers