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The demographic dividend, an opportunity for the development of the economy and the welfare state

Ronald Lee, CEDA, University of California, Berkeley; Andrew Mason, University of Hawaii, co-founders of the NTA project

When a country’s working-age population grows more than its total population the outcome is the so-called demographic dividend, which represents a development opportunity to develop a welfare state protecting people from the risks associated with the labour market. It is an inestimable opportunity, bearing in mind that the demographic dividend is followed by the ageing of the population, which increases the number of elderly dependents and calls into question the sustainability of the welfare state. The experience of Europe and the developed world in general is vital for other regions of the planet that are in phases prior to the demographic transition and therefore still have the opportunity to invest in economic, education and health policies.
Key points
  • 1
       The demographic transition of populations with high fertility and mortality to low values of these two variables culminates in a process of population ageing that is usually preceded by a demographic dividend phase. The National Transfer Accounts (NTA) project makes it possible to measure this dividend by combining demographic data and projections with an imputation of national accounts by age, performed for more than 90 countries on four continents.
  • 2
       In the demographic dividend phase, the working-age population grows more than the total population, which generates very low dependency ratios. These touched bottom in Spain around the year 2010, while in the global economy this point will not be reached until 2048.
  • 3
       The demographic dividend can give rise to an economic boom phase allowing the development of the economy and a strong welfare state. This opportunity is still open to many developing countries, although it has ceased to exist for Spain and Europe in general.
  • 4
       In developed countries all that remains is the possibility of taking advantage of a future second demographic dividend, assuming that the so-called baby boomers have saved enough to increase per capita capital and hence productivity.
  • 5
       Education plays a key role in mitigating the effect of population ageing, as it makes it possible to improve the productivity of the relatively small workforce.
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