4 years ago

Demographic dividend: Let it not turn into a missed opportunity

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There has been a debate in the past few decades among economists and social thinkers over the influence of demographic change on economic growth. The main idea is that population growth either restricts, promotes, or is independent of economic growth.

However, earlier arguments mostly focussed on population size and population growth alone and overlooked the issue of the age structure of the population.

Economist David Bloom and David Canning point out that change in fertility or mortality rates can radically change the population age structure and this has significant implications for economic growth of a country. They termed it 'Demographic Dividend', arguing that when the share of dependent younger population declines in a country, the increased share of the working-age population becomes able to engage themselves in the labour market. This creates a window of opportunity for any given country to transform the overall economy. With fewer children to support back home, the added labour force can then drastically drive the growth engine forward.

In Bangladesh, the fertility rate has declined substantially over the past four decades. A closer look at its labour market reveals that the labour force participation rate is only around 58.2 per cent.

According to the Labour Force Survey 2016-17 conducted by the Bangladesh Bureau of Statistics (BBS), working-age population between the age of 15 and 64 years stands at 109.1 million in the country and only 60.8 million people of them are actually employed compared to 2.7 million unemployed and 45.6 million inactive or discouraged populations.

There are around 41.3 million working-aged youth, between 15 and 29 years, and of them, only 20.1 million are in the labour force. Among the overall working age youth, only around 17.1 million young men and women are employed, as against 2.2 million unemployed and around 12.3 million 'Not in Education, Employment or Training' (NEET) youth.

In order to harness the benefit of added labour force, a country must adopt appropriate plans and policies that enhance its human capital and create employment opportunities. Because, the main driver of growth acceleration during the period of demographic dividend is the added human capital of the youth which is gained through education and training.

However, Bangladesh's labour market scenario looks gloomy as the country is yet to engage a large portion of the youth in productive activities. If Bangladesh fails to develop the capacity of the youth and match the labour market opportunities with the augmented human capital, it is highly likely that the demographic dividend will turn into a missed opportunity.

The importance of education and skills development for economic growth has been well-recognised in the Seventh Five-Year Plan of Bangladesh, but hardly any change has taken place over time in terms of investment priorities and practical initiatives to boost the education sector.

An analysis of the public spending on education in Bangladesh suggests that the allocations have been stagnant at 11-12 per cent of total budget. Likewise, public spending on education as percentage of gross domestic product (GDP) has also remained far below the global average over the past decade. Thus, it appears that the education sector is a rather neglected area in Bangladesh.

Traditionally, major portion of the education budget is allocated for primary and secondary levels. Although, the number of students tend to be higher at the lower level, increased attention is necessary to further strengthen the county's tertiary education as it plays critical role in promoting growth through research and innovation.

The allocation at each level of education is divided into recurrent budget and capital or development budget. The recurrent or operational budget covers expenses such as office supplies, wages, utilities, rent, lease payments and taxes. The development budget is mainly dedicated to growth and improvement of that level.

In Bangladesh context, the operating budget takes up major share of the total education budget and only a relatively smaller portion is left as the development budget. Consequently, activities concerning the enhancement of the education sector are often constrained.

Similarly, insufficient allocation in the capital budget is an obstacle to crafting a well-developed vocational education system. This again poses a threat to demographic dividend as both policymakers and academics recognise Bangladesh must focus on economic diversification and creation of skilled labour force to sustain its export-led growth.

Direct investment aimed at enhancing learning outcome or quality of education is considerably lower than the number of initiatives dedicated to development of physical infrastructure. While investment in tangible infrastructure might be necessary in some cases, this alone is not sufficient to propel growth without additional investment in research and quality enhancement.

In fact, most of the successful economies including the Asian Tigers have prioritised investment on quality education and innovation during the phase of demographic dividend. Undoubtedly, one of the major reasons behind their rapid development was the amplified human capital.

Now, experts suggest, the advantage of the demographic dividend in Bangladesh will phase out in the years between 2035 and 2040. With an increasing life expectancy and low savings-investment ratio, chances are there that the demographic dividend may ultimately turn into a disaster when the bulge of young people will age in a country with a weak socio-economic system and fewer number of supporting working age population.

Nevertheless, a number of actions may ameliorate the threats of demographic burden for Bangladesh. These include immediate measures by the government to prevent leakages in the system, additional revenue generation to increase public spending on priority areas of overall human capital development, initiatives to engage relevant stakeholders and increase the labour market participation of the youth.

The policymakers should also focus on formulating a robust social security system. A collective effort has to be generated for mobilising resources and improving education and labour market opportunities for the youth without any further delay.

Rafiqua Ferdousi is a Research Economist, SANEM

[email protected]

Md. Tuhin Ahmed is a Research Associate, SANEM.

[email protected]

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