Does the economy need more people?

Source: This post is based on the article “Does the economy need more people?” published in Business Standard on 1st September 2021.

Relevance: Technological advancement and its impact on Demography.

Synopsis: In the age of technological disruptions and climate change, the case for a young and fast-growing population driving India’s economy is growing weaker.

Is Demographic dividend needed for economic growth?

Not always. Growth no longer requires large labour resources. Higher youth populations are not always needed to drive growth. This has happened for two main reasons:

  1. One is the increasing contribution of capital and technology to grow. Now, we can grow and generate wealth and income without that many people. Technology can even substitute for a young population, as society grows greyer.
  2. Rapid “dematerialization” of most things produced. The term dematerialization means that most physical products made today use less and less materials and energy than they did before. Dematerialization, along with decreasing population trends in the richer parts of the world, means that even demand for raw materials will not remain that strong in the future.
    • For instance, Cars use less steel and aluminium than they did a few decades ago.
Global examples

Countries with a falling population are coping without the so-called demographic dividend aiding them.

  • Japan, China, South Korea, Singapore, Taiwan, and some parts of Northern Europe are facing population declines in the future since their total fertility rates (TFRs) are well below replacement levels.
  • But even with a rapidly ageing population, most countries are able to get what they want to be done without excess immigration or higher birth rates.
Impact of tech advancement on employment generation

As the world has become more and more dependent on sophisticated technologies, the market for skills has polarized.

  • Demand for middle functions is decreasing: There is a huge need for highly skilled people and also for low-skilled people. But demand for middle-skilled, middle-class, middle-income professions is shrinking. Technology weakens the middle functions earlier done by humans. For example, today banking has become easy by using a mobile phone with no need for the people manning bank branches. The current situation implies that you can hold on to your middle-income job only if you upskill, which may not be an easy thing to do for mid-career slower learners.
  • Problems for India: The real problem is for countries like India, where too TFRs are reaching replacement levels but the working population numbers are so huge as to make it near impossible to find them jobs.
  • Continuous learning challenge: Further, in a world of skill polarization, staying on top is a continuous learning challenge, and only those who have resources can achieve this. In this context, having a huge youth demography is hardly an advantage, especially when the skills you can learn are always the next ones to be automated.

Way forward

There is a significant threat if populations continue to bulge in the most vulnerable parts of the world. Dealing with the existential crises (Climate change and a deteriorating environment) needs us to moderate consumption, and that means slower growth in population. Young people need more resources than older people, and the planet cannot afford a rapidly rising rate of consumption in its poorest countries. 

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