Demographic dividend – . 2024-07-25 08:00:00

A recent research paper from the International Monetary Fund (IMF), entitled “Promoting Gender Equality and Addressing Demographic Challenges,” authored by Jiajia Gu, Lisa Kolovich, Jorge Mondragon, Monique Newiak, and Michael Herrmann, refers to the importance of designing public policies focused on exploiting the demographic dividend to improve economic growth potential.

According to the United Nations Population Fund (UNFPA), this dividend exists when the potential growth of an economy can be increased if the size of the working-age population (15 to 64 years) is greater than the population that no longer works (65 years and older). This effect is possible if the size of the population that contributes resources to the economy through its work contributes to the sustainability of social security schemes and, of course, to pension systems.

Productivity is crucial for the channel through which it operates to be able to pay off this asset, since a growing trend in the number of people who belong to the economically active population can compensate for the needs of people who are dependent due to their age. To do this, it is crucial to analyze the behavior of fertility. According to IMF research, in emerging economies, such as Mexico, higher levels of fertility contribute to reducing the dependency ratio, since the size of the population over 65 years of age decreases as a proportion of the working-age population (15 to 64 years). How is this possible?

As is the case when analyzing people’s decision criteria, there are two mechanisms that contribute to analyzing a woman’s decision to have children: the substitution effect and the income effect. The first occurs when the relative cost of child-rearing limits women’s resources, since it implies the loss of human capital accumulation and, therefore, income. If this effect predominates, a negative correlation is observed between the female labor participation rate and fertility rates.

In contrast, there is also an income effect, which occurs when a higher wage level for women allows them to pay for goods and services to fulfill child-rearing tasks, such as cleaning and care services. If this effect predominates, a positive correlation is observed between women’s economically active participation rates and fertility rates, as occurs in advanced economies.

The obvious question is what we can do in our country to promote an environment in which the income effect dominates women’s decisions to have children, so that higher fertility rates can contribute to the emergence of a demographic dividend that will increase the long-term growth of the Mexican economy. That is, how can we ensure that greater participation of women in the labor force contributes to making social security and pension systems more sustainable?

To put this demographic dynamic into perspective, the figures are overwhelming. According to the most recent population estimates from the National Population Council (CONAPO), in 1994, 30 years ago, the population over 65 years of age represented 8 percent of the working-age population. This figure has increased to 13 percent this year and will continue to rise over the next four decades. Over the next 40 years, this percentage will continue to rise, exceeding 40 percent by 2064. To this demographic dynamic, we must add the fiscal pressure added by the transition of pension systems between the defined benefit system and the defined contribution system administered by the AFORES.

Moreover, when we analyze these data for men and women separately, we can see that their respective trajectories make it more urgent to design public policies focused on addressing these challenges. In the case of men, this year the population aged 65 and over is 12 percent of the male population of working age, a percentage that is expected to increase to 38 percent by 2064. Meanwhile, for women, the figure currently stands at 13 percent and is expected to rise to 43 percent in the next 40 years.

To address these challenges, public policy design must focus on two types of constraints faced by households: time and resources. The first refers to the availability of hours per day to devote to work, care work and leisure. The second, to the allocation of limited resources to education, care and other household expenses. Public care systems, for example, contribute to relaxing both constraints. Other policies, such as paternity leave, are focused on time constraints, while those designed to make the labour market more flexible are directed at resource constraints. The key to all this is that a meticulous design of fiscal policy can create the conditions for a cross-cutting component focused on achieving these objectives, that is, on fostering an environment of greater growth through the exploitation of the demographic dividend.

2024-07-25 08:00:00