India’s youthful population has gotten much play recently. The oft-repeated storyline goes something like this. An already receding West is reckoning with an increasingly ageing population—and a shrinking proportion of workers to foot the bill for its pensioners. Meanwhile, India is benefiting from a “demographic dividend”: Not only will India’s youthful powerhouse add to a growing workforce, but it will also enrich the country’s ever-expanding consumer market. Or so the thinking goes.
The problem with the demographic dividend reasoning is that it assumes India’s youthful workforce will be integrated— frictionless—into the workplace.
Recent research suggests that that might not be so easy. In a paper in the June edition of the American Economic Review titled “The Young, the Old, and the Restless: Demographics and Business Cycle Volatility”, economists Nir Jaimovich and Henry E. Siu find that “when an economy is characterized by a large share of young workers, all else equal, these should be periods of greater cyclical volatility in market work and output than would otherwise occur”.
The authors looked at the Group of Seven (G-7) countries over the past 40 years, and found that in the case of the US, demographic changes contributed to about one-fifth to one-third of moderation of the business cycle since the mid-1980s. Younger employees face a tremendous amount of volatility in work hours or employment, often quickly turning over from jobs. Demography obviously isn’t the only factor driving this—but it’s certainly significant.There’s reason to believe that India’s demographic breakdown may contribute to even more business cycle volatility than its G-7 counterparts. According to the 2001 census data, nearly half of the country’s population was 19 years of age or younger. Many young Indians are now joining careers or salaried positions that did not exist for their parents, or may be the first in their families to pursue white-collared employment. Integrating them seamlessly into the workforce may prove a challenge.
One possible way to foster seamless integration is high-quality education. Though the number of private institutions has proliferated, India still suffers from a shortage of high-quality colleges and universities: One only needs to look at the statistics of those aiming for top schools, as well as the perception that second-tier schools are many rungs lower.
India’s demographic dividend can certainly be a boon. But the challenge will be to integrate such a young workforce, seamlessly.
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