Youth Bulge: A Demographic Dividend or a Demographic Bomb in Developing Countries? (2023)

The youth surplus is a widespread phenomenon in many developing countries and especially in the least developed countries. It is often due to a stage of development where a country manages to reduce child mortality but mothers still have a high birth rate. As a result, a large proportion of the population is made up of children and young adults, and today's children are tomorrow's children are young adults.

Figures 1 (a)-(b) provide some illustrative examples. The division of the world into more and less developed groups (according to UN definitions) shows a big difference in the age distribution of the population. The share of the population in the 15-29 year old age group is about 7 percentage points higher in the less developed countries than in the more developed regions. In Africa (both sub-Saharan and North Africa) we see that about 40 percent of the population is under 15 years old and almost 70 percent is under 15 years old 30 (Figure 1(a)). In a decade, Africa's population aged between 15 and 29 could reach 28 percent of the population. In some countries in “fragile situations” (as defined by the World Bank), almost three-quarters of the population is under 30 years old (examples in Figure 1(b)) and a large proportion of 15-29 year olds will be decades to come (Figures 1(c) and (d)).

Youth Bulge: A Demographic Dividend or a Demographic Bomb in Developing Countries? (1)
Source: Author's calculations based on data from United Nations Department of Economic and Social Affairs, Population Division (2011). World Population Prospects: The 2010 Revision.Medium Fertility scenario is used for the projections for 2050.

In a country with a youth surplus, the country's dependency ratio – that is, the ratio of the non-working-age population to the working-age population – will fall as young adults enter the working age population, all else being equal, the working-age population will be able to be fully productive be employed, the level of average per capita income should therefore rise. The youth surplus becomes a demographic dividend. However, when a large group of young people cannot find employment and earn a satisfactory income, the youth surplus becomes a demographic bomb, as a large mass of frustrated youth is likely to become a potential source of social and political instability1. Therefore, the youth (unemployed) employment rate is a fundamental measure of a country's success in converting the youth surplus into a demographic dividend. Unfortunately, the recent record has not been favourable. While unemployment rates are naturally higher for young people due to their limited work experience, the double-digit unemployment rates shown in Figure 2 are worrying. Typically, prevailing youth unemployment rates are about twice that of the general workforce. The situation in the Middle East and North Africa (MENA) and in the countries of Europe and Central Asia is particularly worrying: youth unemployment is in the order of 20 percent or even higher. Therefore, even for those who are employed, there can be job quality issues2.

Youth Bulge: A Demographic Dividend or a Demographic Bomb in Developing Countries? (2)
Source: World Development Indicators and ILO Global Employment Trends for Youth. Two lines for MENA in recent years relate to the separate Middle East and North Africa sub-regions as per ILO definitions.

East Asian economies have been able to turn the youth surplus into a demographic dividend. Take the Republic of Korea as an example. In the past forty years, Korea's dependency ratio has declined significantly (Figure 4(a)). Along with dramatic GDP growth and rapid rises in average wages, youth unemployment has been below 12 percent and often in the single digits in recent years (ILO data cited above). The same applies to China. Its dependency ratio followed a pattern similar to that of Korea (Figure 1(a)). China has created millions of new jobs since embarking on economic reforms since the late 1970s. At the same time, young workers are being shifted from lower-productivity farm jobs to higher-productivity manufacturing—all without experiencing high unemployment among the youth workforce. ; However, as we saw above (Figure 2), youth unemployment was a serious problem.

Youth Bulge: A Demographic Dividend or a Demographic Bomb in Developing Countries? (3)
Source: United Nations, World Population Prospects: the 2010 Revision.

The traditional policy response: prepare the youth labor supply

The traditional approach to tackling the youth surplus is to get young people employable. The idea is that young people's skills - or more broadly, human capital - need to be increased to increase their productivity in the labor market. The World Development Report 2007, Development and the Next Generation, sets the policy agenda by focusing on five major life transitions: learning, work, health, family and citizenship. Three "lenses" are used to focus policy discussion: opportunities, skills, and second chances. For example, basic skills and access to secondary and higher education are required to create opportunities, while the ability to make the right decisions to seize opportunities can be enhanced with better information, access to credit, and other factors are negative – for For example, poor choices lead to low levels of education or exposure to communicable diseases - young adults may need access to services that can help them get their economic and personal lives back on track institutional frameworks to improve economic outcomes for young people.

The above discussion provides a useful framework for tackling the problem of youth unemployment from the supply side; However, the demand for labor services is crucial for attracting new workers into the labor market. Such a shift in demand can only be achieved through a dynamic change in the economic structure. Countries that have succeeded in this move from a high share of employment in agriculture first to an increasing share of employment in manufacturing and then gradually to the service sector in the post-industrialization phase. This structural change is usually accompanied by rural-urban migration and usually begins in labour-intensive manufacturing. At an aggregate level, one can look at the sectoral shift from agriculture to industry and services - both in terms of value added and employment. For example, Egypt had a GDP per capita (in constant 2005 PPP dollars) of $2,400 in 1980, while China was only $524 and Korea was already ten times higher at $5,500 (WDI data). Egypt had only a slightly higher share of agriculture and employment in GDP compared to Korea; however, this structure largely stagnated in the case of Egypt in the following decades (Figures 4(a) and (b)). Meanwhile, China's GDP per capita of $6800 (2005 constant PPP) has a smaller share of agriculture in China's total value added and employment share has steadily declined. At a micro level, countries like Korea have then moved up the industrial ladder to more sophisticated and capital-intensive goods as capital has accumulated over time with high rates of investment3.During this process, the shift in labor demand creates opportunities for the working-age population to work in jobs that shift from lower-productivity sectors to higher-productivity sectors.

Youth Bulge: A Demographic Dividend or a Demographic Bomb in Developing Countries? (4)
Quelle: World Development Indicators

The issue of youth unemployment was in the news in relation to the "Arab Spring". Many young people protesting on the streets have a relatively high level of education. A recent World Bank report4Notes that in oil-importing countries in the Middle East and North Africa, government sector employment is disproportionate compared to other middle-income countries, while oil exporters have a high-growth sector – oil extraction – that is not labor-intensive. The report concludes: “…The number of jobs created over the past decade has been significantly less than the number needed to address key challenges such as high youth unemployment, low labor force participation, particularly among women, and a rapidly expanding labor force. "5The emerging new leaders in the Middle East and North Africa recognize the urgent need to tackle youth unemployment. In fact, theWDR 2013 on the subject of work, which is currently being prepared and will be made available to various interest groups in broad terms, will deal with this topic, among other things.

How the New Structural Economics (NSE) and the Growth Identification and Facilitation Framework (GIFF) can help get young people into work

A successful development strategy that facilitates structural change and creates youth employment opportunities can be based on the principles outlined in the New Structural Economics (NSE) and their policy implementation via the Framework for Identifying and Encouraging Growth6. The NSE emphasizes that a country's economic structure is endogenous to its foundation structure; However, the state must play a supportive role in the process of structural change, and this role must be structured according to clearly defined principles.

First, to be competitive in both the domestic and international markets, an economy should follow its comparative advantage, which is determined by its foundation structure. In the early stages of development, sectors where the economy has a comparative advantage are labor or resource intensive. Examples include light manufacturing, smallholder farming, fishing, and mining. Few activities like mining are likely to be capital intensive at this early stage. In the later stages of development, the competitive sector becomes increasingly capital intensive as capital accumulates and thus changes the wealth structure of the country. At the same time, industrial upgrading towards more capital-intensive production requires infrastructure improvements to reduce business transaction costs, and the government has a clear role to play in this regard.

Second, if a country follows the above principle, its factor endowment will be upgraded rapidly (due to large profits and a high return on investment), and its industrial structure should be upgraded accordingly. Upgrading includes information (e.g. which new industries to invest), coordination (improving “hard” (e.g. transportation) and “soft” (institutional) infrastructure), and externalities (useful information obtained from “ First Mover" are generated). All these aspects involve externalities or public (semi-public) goods that the market will not automatically solve by itself. The government must play a supportive role in helping the private sector overcome these problems in order to achieve dynamic growth.

A practical approach for government to operationalize the NSE is set out in the six steps of the Growth Identification and Facilitation Framework. Without going into all the details, the six steps are: (i) Identify the list of tradable goods and services that have been produced for about 20 years in dynamically growing countries with similar foundation structures and about 100 percent higher per capita income than their own; (ii) Among the industries in this list, the government can prioritize those into which some domestic private companies have already spontaneously entered and seek to identify the barriers that prevent these companies from improving the quality of their products or the barriers restricting access to these industries by other private companies; (iii) some of those industries in the list could be entirely new to domestic companies and the government could take specific measures to encourage companies in the higher-income countries identified in the first step to invest in those industries; (iv) Governments should closely monitor successful self-discoveries by private companies and provide support to scale up these industries; (v) In developing countries with poor infrastructure and an unfriendly business environment, the government may invest in industrial parks or export processing zones and make the necessary improvements to attract domestic private companies and/or foreign companies that may be willing to invest in the target industries; and (vi) the government may also offer limited incentives to domestic pioneer companies or foreign investors operating in the list of industries identified in Step 1 to compensate for the non-competing public knowledge created by their investments.

As the data above shows, the youth surplus will be an important demographic phenomenon in developing countries and especially in sub-Saharan Africa in the coming decades. While it is important to improve the employability of young people themselves, it is also essential to enable dynamic structural change to create jobs for young people. In this way, the youth surplus can be turned into a demographic dividend and the demographic bomb defused.

[1] World Bank,World Development Report 2011: Conflict, Security and Development. Washington, D.C..

[2]See World Bank, 2011, “Striving for Better Jobs: The Challenge of Informality in the Middle East and North Africa.“

[3]There are numerous studies on the productivity of Korean companies. A recent study examines the pattern of productivity catching-up between Korean and Japanese firms: Moosup Jung, Keun Lee and Kyoji Fukao, "Total Factor Productivity of the Korean Firms and Catching Up with the Japanese Firms", Seoul Journal of Economics, 2008, Vol. 21 (1).

[4]World Bank, 2011, “The Quest for Better Jobs: The Challenge of Informality in the Middle East and North Africa.”

[5]Ibid, page 48.

[6]See Justin Yifu Lin, "New Structural Economics: A Framework for Rethinking Development”,World Bank Research Observer,when. 2, Vol. 26 (September 2011), pp. 10-11. 193-221; Justin Yifu Lin and Celestine Monga, "Growth identification and facilitation: the role of government in the process of dynamic growth”, Development Policy Review, Vol. 3, No. 29, No. 3 (May 2011), pp. 264-290; and Justin Yifu Lin, 2012, New Structural Economics: A Framework for Rethinking Development and Policy, Washington, DC: World Bank.

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