On the Dynamics of the Demographic Dividend a Formal Analysis of the Timing and Magnitude

Thomas Fent , Vienna Institute of Demography
Joshua Goldstein, University of California, Berkeley
Gustav Feichtinger, Wittgenstein Centre (IIASA, VID/ÖAW, WU) and Vienna Institute of Demography

When fertility declines, there is a transitory period of low dependency. This occurs when the largest cohorts born during the transition are of prime working ages and there are at once few children and few Elderly. The benefits arising from such an advantageous age structure are subsumed in the concept of the first demographic dividend. The goal of this paper is to provide a formal framework for understanding the timing, duration, and magnitude of the gain from the “demographic window of opportunity” that accompanies the decline in fertility. We show that classical stable population theory is not able to quantify the magnitude of the effect arising from an advantageous age structure. Nevertheless, Coale's model of constantly declining fertility is capable to quantify age structure effects that are comparable in magnitude and duration to those of real populations. From empirical research we know that both changes in and the level of the support ratio have an influence on economic growth (Kotschy et al., 2020). We focus on the level because it is the current level that determines the advantage in terms of output per capita. Moreover, this approach allows for a coherent quantification of the gain accumulated over the favourable period and an intuitive economic interpretation. Our formal demographic model explains how, when, how long and to what extent the fertility decline generates benefits in terms of labour supply. In addition, our approach allows for an accurate sensitivity analysis and projections of these benefits.

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 Presented in Session 83. Economic Impacts of Population Change