Not all is lost: Reaping dividends of demographic change

Until now, Pakistan has failed to make use of growing working age population.

ISLAMABAD: Despite fragile economic conditions, Pakistan, with 63% of its population below the age of 24, still has a golden opportunity to capitalise on the demographic dividend.

According to data compiled by the Pakistan Census Organisation, the growth in labour force has been faster than the population growth. Consequently, working-age population (15-64 years) as a percentage of total population has increased from 54% in 1998 to 60% in 2013.

At the same time, dependency ratio dropped from 0.86 to 0.75. These trends are expected to continue over the next two decades and the dependency ratio will reach the lowest by 2030.

The growing working age population provides with an opportunity that can potentially produce rapid economic growth through an increase in the ratio of working age to dependent population.

With rapidly declining fertility and aging population in the industrialised world, Pakistan’s growing talent pool is likely to play a much bigger role in satisfying the global demand for workers in the 21st century and contribute to the well-being of the country as well as other parts of the world.

Since the 1990s, Pakistan has been passing through a demographic transition which is expected to continue until 2045. But unfortunately the country has failed to seize the opportunity, due to which it is lagging behind competing neighbours – China and India.

According to estimates given by the International Monetary Fund, from 1970 onwards, between 40% and 50% of the Indian per capita income growth was the result of demographic dividend. Moreover, this dividend will add about two percentage points per annum to India’s per capita GDP growth over the next two decades.

Until now, Pakistan has lost precious time in reaping the demographic dividends, which started some 22 years ago. But it is still not too late as the window of opportunity could last for another 23 years when the youth bulge gives way to an aging population.

Youth workforce has grown faster at 4.3% per year, well above regional average of 2.7% and is expected to rise at the same pace for at least 10 years. At the existing fertility rate, the young population will double by 2025.

Daunting challenges

Youth in Pakistan face a number of challenges on their way to starting a work life such as early start to work, failing to enter the labour market and difficulties in moving across jobs. Besides, lack of education, formal skills and experience are some of the major issues that stop youth from maximising economic opportunities in the labour market.

According to a recent labour force survey, 52% of young people are not part of the labour force and even among those who are in the workforce there are significant obstacles to shifting jobs. Their unemployment rate is 9% compared to 5.6% for the adults.

In addition to this, the labour force is expected to expand 3.5% a year as about 1.5 million young workers start seeking jobs every year.

Pakistan needs to convert this massive demographic bulge from a political and social burden into an exceptional demographic dividend through rapid job growth that creates millions of new and better private sector jobs.

In order to avoid a full-blown crisis, the country has to create around 1.5 million jobs a year until 2020 just to keep unemployment constant, assuming that female participation in the workforce remains constant. Female participation has remained persistently low in the last many decades and throughout their lifespan.

Benefits of the demographic dividend cannot be reaped if less than 15% of working age women avail themselves of the economic opportunity.

In the current state, if the young population achieves higher education with access to opportunities for investment and high-wage employment, Pakistan can look forward to rapid economic growth. Failure to fully involve youth in the process of economic growth can lead not only to loss of growth potential, but also violence in society.

Demographic change requires accelerated employment generation, improved healthcare and quality of education and changes in the institutional structure for an inclusive growth.

If these steps are taken, then the country could be placed on a path of high economic growth, leading to an enlightened society where the young become architects of a better future. To maximise the opportunities, planning is indeed needed both during and after the dividend period.

The writer is a researcher at the Economic Growth Unit of Sustainable Development Policy Institute

Published in The Express Tribune, November 4^th, 2013.

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