Who benefits from demographic dividend?

Currently Indonesia is entering the demographic dividend era and the peak is projected to occur in 2028-2031. The demographic dividend, also known as the dependency ratio, occurs when the ratio of young people (15 years and younger) and old people (65 and older) to people at a productive age (15-64 years) shrinks.

In fact, in 1971-2010, the percentage of young people decreased from 44 percent to 28.85 percent, while the percentage of productive aged people increased from 53.5 percent to 65.74 percent, and the percentage of old aged people slightly increased from 2.5 percent to 5.41 percent. The dependency ratio decreased from 86.84 in 1971 to 51.31 in 2010.

The percentage of younger people is shrinking mainly because of a decrease of the total fertility rate (TFR), especially between 1971 and 2010. The TFR in the 1970s was recorded at about 5.6, meaning on average a woman gave birth to 5.6 children through her life time. In 2010s the TFR decreased to 2.6.

The smaller the dependency ratio the wider the window of opportunity that will in turn create higher potential economic growth. In China, the contribution of the demographic dividend was about 30 percent to its economic growth. On average, for every one point decrease in the dependency ratio there is a contribution of about 0.115 percent in economic growth according to a paper written in 2012 by a scholar from China named Zhang Monan.

If the government could manage its demographic dividend, it is possible that this country could get the same benefits as China does. However, the benefits may not be the same in all provinces and there could be a difference between urban and rural areas. This could happen as a result of migration, mostly by people in productive ages.

Until recently, there were a great number of people moving from rural to urban areas. The population in urban areas increased from only 17.29 percent in 1971, to 49.79 percent currently. It has been predicted that by 2035 about 66 percent of the population will live in urban areas.

Urban areas would thus probably see benefits from the demographic dividend. In fact, the poverty rate in urban areas is much lower than in rural areas, 8.16 percent in urban areas and 13.76 percent in rural areas as of September 2014.

Jakarta has enjoyed the demographic dividend since the 1980s. The dependency ratio in Jakarta reached 36.94 in 2010. Nowadays, Jakarta experiences high enough economic growth, a low poverty rate and a high human development index/HDI compared to other provinces in this country. In 2014, for example, the economic growth in Jakarta was about 5.95 percent, the poverty rate was about 4.09 percent, and the rank of its HDI was the highest among the 33 provinces in Indonesia.

On the other hand, East Nusa Tenggara (NTT), as one province experiencing a high rate of loss in the number of its productive people moving out to urban areas on other major islands, sees a very small benefit from its demographic dividend, as shown by its dependency ratio of 73.2, among the highest in the country.

Although economic growth in NTT is considered moderate, about 5.04 percent in 2014, that growth failed to reduce poverty and improve the human development progress of its people. The poverty rate in NTT is high, 19.60 percent in 2014. Its HDI is the second lowest of the 33 provinces.

With a high number people in productive ages moving out from NTT it is predicted that this province in the future will face problems in maintaining economic growth.

Therefore, the government should take a better strategy for closing the gap or the disparity in the stages of development of the 33 provinces. This could better enable them to benefit from the demographic dividend. One strategy is probably to integrate with the national development plan called ‘€œdevelopment from the edge’€ or from the rural areas.

Bridging the development gap between the provinces will also decrease income inequality. Currently, the income inequality tends to go up, as indicated by the increase of the Gini ratio from 0.35 in 2008 to 0.41 in 2012. The Gini ratio takes a value between 0 (perfect equity) and 1 (the most extreme gap).


The writer is the director of population and labor force statistics at the Central Statistics Agency (BPS).



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