Demographic dividend

The demographic dividend is a rise in the rate of economic growth due to a rising share of working age people in a population. This usually occurs late in the demographic transition when the fertility rate falls and the youth dependency rate declines. During this demographic window of opportunity, output per capita rises. It has been argued that the demographic dividend played a role in the "economic miracles" of the East Asian Tigers and that the economic boom in Ireland in the 1990s (the Celtic tiger) was in part due to the legalization of contraception in 1979 and subsequent decline in the fertility rate. In Ireland the ratio of workers to dependents improved due to lower fertility but was raised further by increased female labor market participation and a reversal from outward migration of working age population to a net inflow. Africa, on the other hand continues to have high fertility and youth dependency rates, which contribute to its economic stagnation. The magnitude of the demographic dividend appears to be dependent on the ability of the economy to absorb and productively employ the extra workers, rather than a pure demographic gift.

Low fertility initially leads to low youth dependency and a high ratio of working age to total population. However as the relatively large working age cohort grows older, population aging sets in. The graph shows the ratio of working age to dependent population (those 15 to 64 years old, divided by those above or below this age range - the inverse of the dependency ratio) based on data and projections from the United Nations.