Managing the demographic dividend of the Maldives

We often talk about the economic success of the East Asian economies and question why we can’t be there yet. Most times, we attribute their success to various policy factors such as good governance, investing in infrastructure, good social policies and norms. Of course, these factors do matter, but the ‘economic miracle’ of East Asia came in the backdrop of an overarching endowment present at the time these economies started booming. There was a crucial demographic transition when the economic miracle started at first – the working population outnumbered the dependent population. This change along with policy factors conducive to multiply this opportunity made the ‘economic miracle’ a reality.

The Maldives is also going through a similar demographic transition. Our fertility or birth rate has fallen dramatically. The fertility rate has fallen from over seven births per woman in mid-1980s to two births per woman by 2014. Similarly, the mortality rate has also been falling for the last half a century. This demographic transition opens up an opportunity that a country can exploit as the number of people in the working age population increases compared to that of the dependent population. If we look at the ‘age dependency ratio’ (the share of dependent age population against the share of the working-age population) of the Maldives, we can see that the share of dependents (0-15 years old and 65+ years olds) started to dramatically fall in the early 1990s. We are still experiencing a fall in the ‘age dependency ratio’, although its speed of fall has slowed down, and is expected to fall for another 20 plus years.

Furthermore, the share of the working-age population, 15-64 years old, is rising, indicating a higher number of workers in the population than ever before. More notably, more than half of the working population is under the age of 30, indicating many years of working ahead of the country’s labor force.

Hence, we currently have a workforce that is predominantly young and needs to support a fewer number of dependents than ever before. We can expect youthful energy and more time devoted to production of economic gains.

The demographic transition that we are currently experiencing is important for many reasons. One of the most important reason is that it has the potential to drive economic growth on a higher path. This is popularly known as “demographic dividend”. The academics define demographic dividend as he economic growth potential that can result from the shifts in a population’s age structure, mainly when the share of the working-age population, 15 to 64, is larger than the non-working age share of the population. With good policies, a country can magnify the effects of the demographic dividend and can cause social progress and economic transformation. The effects of the demographic dividend need not be temporary within the timeframe of the dividend. It can linger beyond but with the realization of the dividend and policies to sustain the gains.

Labor or human resources and their productivity is a catalyst for economic growth. The positive effect of having a higher number of workers and more productive workers are seen on any theory or study done on economic growth. Consequently, it is no surprise that governments devote a lot of resources in developing the human resources of a country and their productivity.  There are a few policy prescriptions that we can follow to achieve the potential of the current demographic transition.

One of the most important policy target to realize the demographic dividend is to increase the labor force participation rate. The Household Income and Expenditure Survey (HIES) of Maldives carried out in 2010 showed that the inactive labor force of the Maldives is disappointingly high at 28%.  In other words, 28% of the working-age population is not doing anything economically productive. The lost production via inactive labor force must be minimized to realize the demographic dividend. To address the issue of inactive labor, the trends within the inactive labor must be identified and addressed.

One such pointer is lower participation rate among women. In fact, HIES 2010 showed that labor force participation among women is increasing gradually, but remained low at 54%. It is possible that women may be economically inactive due to social norms, family responsibilities and early years’ of working-age falling on prime childbearing age. The flexibility of working hours and better working conditions can encourage more women to contribute to the economy via work. Expanding access to contraception and its utilization can increase working time of women via planned pregnancies.

Another issue is lower participation rate among the youth. However, this observation may be due to the youth engaged in gaining skills or studies. Otherwise, it is a grave concern that must be addressed immediately. Skills training and making youth ready for work available in the market should be a government priority to address this issue.

Furthermore, there are policies that can assist to realize the demographic dividend applicable to any subgroup of people. Increasing employment opportunities by any means can open doors for the inactive labor force to get employed. Increasing access to finance or financial markets can encourage the productive labor force to engage in entrepreneurial activities and contribute to the economy.

Other government policies such as investing in young people’s schooling and health can also compliment the goal to realize the demographic dividend.  Preventive public health care can foster a healthy population ready to contribute to the economy. Schooling and education will increase the knowledge and skills to contribute. Hence, investing in education and health can not only improve the immediate well-being but also improve the employability, productivity and earnings of the young people.

As it can be observed above, the demographic transition is an endowment provided to a country for a limited time. To realize the full potential of the transition and convert it to a dividend, a country must steer several other policies in the right direction. Experts advise that “policy must be conducive to growth. That requires attending to macroeconomic stability, an enabling business environment, human capital accumulation and rule of law”.

Meanwhile, now is the time for the ‘economic miracle’ of the Maldives. If we fail to grasp the demographic dividend in this window, the next cycle of demographic transition will make it life even more difficult. The working-age population will age and will become dependent on a smaller working population. If we do not shift our economic growth to a higher level now, it will be increasingly difficult for our children and grandchildren to do that. It is time for us to collectively act and transform the lives of us and our children.