Countries with a large working-age population tend to become richer quicker than those where this group is smaller in relation to children and older people. Jess Crespo Cuaresma, Wolfgang Lutz and Warren Sanderson show in a recent study that this is mostly due to improvements in educational attainment among the young population, and not due to the fertility decline, as previous analyses claimed.
The demographic dividend
The new evidence challenges the concept known as the “demographic dividend”: It refers to changes in age-dependency ratios, meaning the number of working-age people in relation to those who are too old or too young to work. Following a decrease in fertility rates, there would be a predictable timespan over the course of demographic transition when there would be many more working-age people then children or older persons. This timespan, based on this idea, would increase economic growth in a country by benefiting from its “demographic dividend”. However, according to the authors, this concept of “demographic dividend” underestimates the role of education.
Why education matters for economic growth
Studies exploring the effect of changes in age-specific educational attainment identify improvements in education as a key driver of economic growth and future income developments. Higher skill levels of the labor force can directly translate into higher productivity and better and faster take-up of new technologies. In addition, education is an important factor for improving the health status of the population and also tends to contribute to the quality of governance in general. The study especially emphasizes the role of female education as one of the key factors — if not the single most important factor — for fertility decline and hence for the declining young-age dependency ratio, which is the key factor in the “demographic dividend” argument. In this sense, education could be seen as a key trigger of the fertility decline that consequently kick-starts the demographic dividend.
The educational dividend
Reviewing the existing research that uses the concept of “demographic dividend”, the authors argue that education, translated into human capital level, originally was an important independent variable, but has not been sufficiently explored later on. Using improved date, they revisit the empirics of these publications.
After controlling for both the stock and improvement in human capital, they find that statistically, the change in educational attainment levels is the primal source of the demographic dividend effects present in the data.
Results imply that the successful historical examples of demographic dividend effects, like the sustained income growth rates in East Asia between the 1960s and 1990s, need to be understood in the context of the educational expansion that accompanied the observed changes in age structure. In this sense, what previous studies have identified as an age structure dividend really is dominantly an education dividend.
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This Population Digest has been published with financial support from the Progress Programme of the European Union in the framework of the project “Supporting a Partnership for Enhancing Europe’s Capacity to Tackle Demographic and Societal Change”.