Asia-Pacific's demographic dividend - A once in a lifetime opportunity

Bangkok – Asia-Pacific economies are facing a "once in a life time opportunity" to gain from high levels of working age populations – "the demographic dividend" – or risk high unemployment and waste of human resources, the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP) says in its latest Survey.

The Economic and Social Survey of Asia and the Pacific 2007 is calling for greater flexibility in labour markets to ensure the region's youth has access to jobs for the region to fully benefit.

This "once in a life time opportunity" of the demographic dividend has come by a combination of falling fertility rates – from six children per woman in 1950-1955 to 2.4 in 2000-2005 – and lower mortality rates. This, the Survey says, has created "a bulge in the age distribution" focused on the younger generation.

Since the 1970s the Asia-Pacific region has experienced significant increases in the proportion of working age population. The fastest and most pronounced "demographic transition" has occurred in East and North-East Asia, where the working age population – at about 57 % in 1970s, is expected to peak at 72% in 2010.

North and Central Asia and the Pacific are also at advanced stages of the demographic transition, with a peak of 2010 as well. In South East Asia and South Asia, the statistical bulge will reach a peak in 2025. In countries such as Thailand the dividend is fairly advanced. "It is peaking in Viet Nam, while the peak will be much later in the Philippines," the Survey said.

But the benefits into economic welfare and growth are not automatic, the Survey warns. There is a need for flexible labour markets, especially in areas of regulations to allow easier entry for young people into the workforce as well as improved flexibility and mobility across sectors.

"Rigid employment protection laws and excessively high minimum wages need to be carefully reviewed and reformed because they are the main barriers preventing young people from entering labour markets," the Survey said.

To benefit from the "demographic dividend" UNESCAP says that a few key policies are needed including greater access to basic education, improving education quality to ensure young people have the background and technical skills to match labour market demand.

Higher investment in education is feasible because of rising savings from the low dependency ratios during the transitional period.

The Survey says failure to reap the benefits by ensuring youth employment can be costly, leading to high unemployment especially, the waste of human resources and a threat of "higher crime, social unrest and political instability."

"The growth in labour force, along with increasing savings resulting from falling dependency ratios, can provide a tremendous boost to investment and growth."

"This window of opportunity opens only once in a lifetime, closing within a generation as the population ages and dependency increases," the Survey said.

All subregions in Asia-Pacific have experienced significant increases in the proportion of working age populations since the 1970s, and are "well-placed to reap the 'demographic dividend' before their populations start ageing once again."

But the Survey warns there are no guarantees the "dividend" will automatically translate to economic growth. Countries need to put in place the appropriate "social and economic policies and institutions" to absorb the rapidly growing labour force.

The Survey pointed to East Asia's experience, where studies estimate the demographic dividend to account for between "one fourth to two fifths" of East Asia's so-called "economic miracle."

"With the benefits of a good education, and a liberalized trade environment, this huge workforce was absorbed into the labour market, increasing the subregion's capacity for economic production", the Survey said.

But the Survey warns there are signs of inadequate preparations to reap the benefits from of the demographic dividend. Unemployment among youth – aged 15 to 24 years – has been rising despite economic growth of 6% in the region over the past decade.

"Youth have been the most affected, as they make up only one fourth of the working age population but half the unemployed," the Survey said.

As the region's oldest and most prestigious annual review of economic and social developments, UNESCAP's Economic and Social Survey of Asia and the Pacific provides the only independent source of analysis covering all countries in this vast and diverse region, and considers both the social and economic spheres of development. The 2007 Survey, entitled "Surging Ahead in Uncertain Times," looks at the most critical issues, challenges and risks our region faces in the months ahead.

Headquartered in Bangkok, Thailand, UNESCAP is the largest of the UN's five Regional Commissions in terms of membership, population served and area covered. The only inter-governmental forum covering the entire Asia-Pacific region, it aims to promote economic and social progress.∞