Why in the News
A World Bank forecast warns that 1.2 billion young people in the Global South, the developing world, will reach working age over the coming decade. The global economy will create no more than 400 million viable jobs. The gap of about 800 million jobs threatens to turn the demographic dividend, the growth boost a young workforce can give, into instability.
Why is the old demographic dividend blueprint failing?
- Demographic dividend formula: As fertility falls, working-age adults briefly outnumber dependents, like a household with more earners than dependents. This window lifts productivity and savings.
- East Asian miracle: The formula fuelled the East Asian economic miracle of the late 20th century.
- Factory jobs ladder: Light manufacturing once moved unskilled workers from subsistence farming into urban jobs. Automation, robotics and industrial software have cut how much labour factories need.
- Premature deindustrialisation: Developing countries now lose factory jobs before reaching the income levels at which today’s rich economies industrialised.
- The takeaway: Youth bulges are arriving just as the old ladders of mobility stall, so a larger workforce no longer guarantees growth.
What must change, and who must act?
- World Bank prescription: Unlock private capital and dismantle regulatory sclerosis, meaning rules so complex that they choke new firms.
- Barriers to small firms: Costly capital, erratic rules, predatory taxation and weak property rights deter investment. So small firms, the main job creators, cannot grow and hire.
- India’s record: India lags on regulation but does better on infrastructure. Building it absorbs labour, and the finished assets cut business costs.
- Shared burden: Rich economies and multilateral lenders must offer affordable long-term finance and technology transfer. Developing countries must carry out painful institutional reform.
Which sectors can still absorb young workers at scale?
- Agri-tech and food value chains: Cold chains and local food processing can create rural jobs, so fewer people move to cities out of need (distress migration).
- Care economy: Nursing, community health and elder-care jobs cannot be outsourced and go largely to young women.
- Tourism and culture: Tourism is labour-intensive and resists automation.
- Green manufacturing: Solar components and electric two-wheelers can absorb labour if paired with skill-building.
Why does the jobs gap matter, for the world and for India?
- Social instability: Educated youth shut out of work lose trust in governments, which fuels polarisation, extremism and civil unrest.
- Migration pressure: Joblessness in the Global South will push forced migration towards the Global North.
- India’s position: The world’s most populous nation adds millions of young workers each year, with a median age under 30. Its employment has not kept pace with GDP growth.
- India’s constraints: In a narrowing demographic window, India faces:
- skills that do not match employers’ needs;
- persistent underemployment and low female labour force participation;
- farming that holds nearly half the population but yields only 16% of GDP (FY24).
Challenges
- Thin formal skilling: Few young Indians hold formal vocational training. Eg. Only 4.4% of young people are formally skilled.
- Informality: Most workers hold informal jobs with low wages and no social security.
- Youth outside work and study: A quarter of youth aged 15 to 29 are NEET (not in employment, education or training).
- AI and services jobs: Artificial intelligence (AI) threatens entry-level IT and back-office work.
Way Forward
- Job-linked incentives: Tie production incentives to jobs created in textiles, footwear and food processing.
- Care workforce: Expand nursing and elder-care training with formal wages and recognised certification.
- Regulatory simplification: Extend the decriminalisation of minor business offences begun by the Jan Vishwas (Amendment of Provisions) Act, 2023.
- Women’s participation: Fund childcare and safe transport so women can take up care and service jobs.
Conclusion
India’s demographic dividend will pay only if growth becomes labour-absorbing rather than capital-heavy. Whether the Centre and States ease regulation for small firms before the window closes will decide between dividend and disaster.
What is the demographic dividend?
- UNFPA definition: The United Nations Population Fund (UNFPA) defines it as growth potential arising when the working-age (15 to 64) share of the population exceeds the non-working share.
- India’s window: A McKinsey Global Institute report (2023) gives India a 33-year window to use its demographic dividend.
- Growth potential: The International Monetary Fund (IMF) estimates it could add nearly 2 percentage points a year to India’s per capita GDP growth for two decades.
- Uneven across States: Southern States are nearing the end of their dividend. Northern States still have expanding workforces.
Matching Previous Year Question
“[2018] Consider the following statements : Human capital formation as a concept is better explained in terms of a process which enables 1. individuals of a country to accumulate more capital. 2. increasing the knowledge, skill levels and capacities the people of the country. 3. accumulation of tangible wealth. 4. accumulation of intangible wealth. Which of the statements given above is/are correct? (a) 1 and 2 (b) (b)2 only (c) (c)2 and 4 (d) 1, 3 and 4 ANSWER: (c)”
