Demographic Dividend
I’ve been reading a few things that people recommended on the macroeconomic consequences of demographic shifts. The clearest, most rigorous, and most useful conceptual element I’ve seen is the idea of a “demographic dividend” that relates to the ratio of working to non-working people in your population. If you have tons of kids, you have a low ratio. Then a several decades later you have a situation where those kids are middle-aged and their parents are retired. If the middle-aged people shift to having small families, then you have a very high ratio of workers to non-workers, which is good for growth. But then several decades after that, you might once again have a slow-growth low-ratio situation.
Check out this chart:
This seems to do useful work in explaining the current East Asian boom.
On the other hand, it also implies that, contrary to conventional wisdom, the demographic situation in Europe has generally been more favorable to growth than it has in the United States and that this trend should continue into the 2030s.
Somewhat relatedly, this post by Claus Vistesen makes the case that Japan’s population aging/decline dynamic is inextricably linked to the export-orientation of the economy. This makes a lot of sense to me.
9 Responses to “Demographic Dividend”
Register
RSSLogin
Topic Cloud
ArchivesBlog RollAbout Matt YglesiasContact Me
Donate
April 6th, 2009 at 2:49 pm
Of course, this refers to GDP growth. If you’re looking at wage growth it would be just the opposite. A contracting supply of labor increases wages in all professions, leading to wage inflation that pulls down real GDP. Since I’m a wage earner, I’m not particularly keen on the government intervening to compensate for this particular problem.
April 6th, 2009 at 2:53 pm
Definitions of “working age” differ from region to region. People are “working age” for a smaller percentage of the lifespan in the United States than almost anywhere else. What with college and often graduate school becoming almost the norm, and plummeting retirement ages, many people will spend barely 30 years in the workforce. For example, if you spend a couple years in graduate school you may not enter the workforce, at least on a full-time basis, until you are 23 or 24. If you then retire at 55 – today retirement at 50 is commonplace – that only translates into 31 or 32 working years.
April 6th, 2009 at 2:59 pm
The situation in Europe is NOT more favorable to growth because there is a missing element to your analysis:
“Percentage of population increase year-to-year”, which is much higher in the US than in Western Europe. Add this data to your graph and you’ll have a much more accurate picture.
April 6th, 2009 at 3:03 pm
Peter says: What with college and often graduate school becoming almost the norm
College attendance and graduate school are nowhere near the norm in the US. And you’re making the assumption that people are not working while attending school. Large portions of the people working on degrees, especially graduate degrees are currently in the workforce.
April 6th, 2009 at 3:16 pm
Matt, unless you keep posting on demographic/population issues to give better informed commentators a chance to opine, give it up. You’ve demonstrated you don’t know what the heck you’re talking about in these areas.
Mike
April 6th, 2009 at 3:30 pm
This dynamic gets even more interesting when you factor in the new opportunities for economic integration enabled by new technologies (now just starting to get traction in many emerging economies) and a new, more entrepreneurial emphasis in development strategies (e.g., Prahalad’s Fortune at the Bottom of the Pyramid). The upshot: lots of young, ambitious, tech-savvy entrepreneurs in developing countries, ready to upend the existing economic order.
I’m working on a book on these subjects that will probably be out this time next year. Your occasional posts on demographics are very much in line with my research.
April 6th, 2009 at 3:36 pm
And you’re making the assumption that people are not working while attending school. Large portions of the people working on degrees, especially graduate degrees are currently in the workforce.
You are correct.
I had been using as examples people who attend college full-time and then go right onto graduate school full-time, as they are the ones who’ll spend the least amount of time in the workplace.
April 6th, 2009 at 5:33 pm
Why is the “demographic dividend” the most rigorous concept? Not to dispute it, but why “rigorous”? Or is this just MY trying to sound economicsiness?
April 6th, 2009 at 5:47 pm
Why is the “demographic dividend” the most rigorous concept?
Just in the sense that compared to some of the other issues I saw discussed, it has a very clear definition and you can see in a solid way why this factor would influence growth.