Research & Innovation 2015-16 - Page 32

Thought leader
Why South Africa isn’t cashing in on
its demographic dividend
South Africa has very high unemployment levels. Part of the reason for this
is that there has been a disconnect between the growth in employment and
the growth in the labour force.
Although growth in employment has kept pace with
growth in the working-age population, it has not kept
pace with growth in the labour force. Unemployment
has therefore increased, both in absolute terms and as a
proportion of the labour force.
The disconnect between the growth in employment
and labour force emphasises the importance
of understanding the long-term challenges and
opportunities associated with demographic change.
A country achieves a demographic transition when it
shifts from a high-fertility, high-mortality equilibrium to
a low-fertility, low-mortality equilibrium.
It is then associated with two potential dividends
that contribute to long-term economic growth and
development. The first is triggered by falling fertility
rates after a decline in mortality rates, particularly
among children. The second can be realised through
capital deepening. South Africa is in the midst of just
such a demographic transition. The magnitude of South
Africa’s demographic dividend is in line with that of
other middle-income countries. But estimates of the
first demographic dividend show that we have passed
through at least half the period in which it is expected to
be positive; the magnitude of the dividend is now falling.
The two demographic dividends
One useful measure for analysing this transition
is the support ratio. This compares the number
of effective workers with the number of effective
consumers. A rise in the support ratio means a
lower level of dependence. Declining fertility leads
to a reduction in the number of dependent children
compared with non-dependent adults. In addition to
demographic change, both income and consumption
at each age influence the rate of change of the support
ratio, and the magnitude of the demographic dividend.
In South Africa, income begins to rise at a later age,
and is lower – relative to peak income – than among
young people in other countries; Also, per-capita
income falls significantly for older working-aged adults.
South Africa is at a relatively advanced point in
the demographic transition. The youngest cohorts
within the working-age population are expected to
stabilise in size and begin to contract. At the same
time, the number of older working-age people – who
comprise a large proportion of effective consumers –
is expected to grow rapidly. To benefit from the final
phase of the demographic dividend, the economy
needs to grow employment and improve labourmarket prospects for younger working-age people.
Greater employment will raise mean incomes, allowing
South Africans to invest in education and save.
These actions are crucial for achieving the second
demographic dividend.
The evidence confirms that inequality in consumption
is limiting the size of the demographic dividend. This
suggests that weak sharing mechanisms in the country
may have a negative impact on per-capita income
growth over time. In some sense this provides support
for the argument that inequality acts as a brake on
economic growth.
Morné Oosthuizen is deputy director of the
Development Policy Research Unit. Image by HeinzJosef Lücking, Wikimedia Commons.

Wikimedia Commons

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