Although a large population is traditionally seen as a bottleneck for rapid growth in a country like Bangladesh, recent development literature highlights two-way positive interactions between population and economic growth, especially in terms of its changing age structure. Changes in age structure lead to decline in dependency ratio which favours higher economic growth if supportive policies enhance employability prospects of the labour force.
The initial decline in dependency ratio starts with a demographic transition from high to low birth and death rates which results in demographic dividend for the economy that continues until the share of working-age population reaches its peak.
Afterwards, the dependency ratio starts rising due to aging that is, increasing proportion of people who are 65-plus which raises the old-age dependency ratio. During this phase of population dynamics, a country can reap a second demographic dividend over an infinite time horizon if high income levels can be maintained and people accumulate adequate savings and assets for their retirement. However, the benefits of these demographic dynamics can only be realised if human capital can play its due role in economic growth and development.
How has the dependency ratio changed over time in Bangladesh? Between 1950 and 2010, the country's total dependency ratio fell by 24 percentage points from 82.3 to 58.3 percent which is entirely due to fall in child dependency ratio (which fell by 24.4 percent). On the other hand, the period experienced a minor increase in old-age dependency ratio. This shows that Bangladesh is currently passing through a period of demographic dividend.
The projections show that Bangladesh will continue to experience a continuously falling, albeit gradual, child dependency ratio to reach 25.6 percent in 2050 from 50.8 percent in 2010 while old-age dependency ratio will face a rising trend to move to 23.1 percent in 2050 from 7.4 percent in 2010. As a result, total dependency ratio will decline to 48.7 percent in 2050 from 58.3 percent in 2010.
In the case of working-age population, the number rose from 17.9 million (54.8 percent of total population) in 1950 to 83.5 million (63.2 percent of total population) in 2010 and is projected to reach its peak of 137 million (69.5 percent of total population) in 2040.
The above shows that the size of the country's labour force will increase by nearly 53 million between 2010 and 2050 which gives a wide window of opportunities for Bangladesh to raise economic growth by developing the human capital of the young children of today who would join the labour force over the next two decades.
The policy choice is clear: Bangladesh must implement required measures to create a workforce with highly skilled labour before its population starts to age mid-21st century, when a different set of problems would emerge for the Bangladesh economy.
No doubt, job creation is one of the main concerns of the policymakers in Bangladesh today. According to a recent World Bank study, working-age population will increase by 170,000 every month in Bangladesh; and to keep employment rates constant, 1.1 million additional jobs would be needed every year. The 2016-17 LFS shows that the total number of labour force increased from 56.7 million in 2010 to 63.5 million in 2017—an increase by 6.8 million in seven years or nearly by one million each year. According to LFS, the number of employed persons rose by 6.7 million between 2010 and 2017 or by about 0.96 million on average every year.
Informality is a key feature of employment in the labour market. Overall, informal employment dominates; with the incidence of informal employment slightly declining from 87.5 percent in 2010 to 85.1 percent in 2017.
From the policy perspective, one needs to distinguish between shorter and longer term effects of economic growth in the labour market. In the short-term, growth can raise employment rate with greater labour demand. On the other hand, growth can reduce employment rate in the longer term, as with rising incomes and living standards, households acquire the ability to keep their children longer in education prior to entering the labour force. The labour market characteristics and available information point out that the relationship between employment and economic growth is somewhat weak in Bangladesh as in most developing countries.
Evidence on longer term relationship between economic growth and employment rates across countries with different levels of per capita income suggests a U-shaped curve. In low-income countries, very high employment rates persist where people, both women and men, start working at younger age, and cannot afford to remain unemployed or retired at a later stage.
According to available research, employment rate in terms of income per capita is much below the predicted level in Bangladesh. And this is entirely due to women working less than in other countries. The labour force participation rates for males and females differ widely in Bangladesh: 82.5 percent and 36 percent respectively in 2010 which changed slightly to 80.5 percent and 36.3 percent respectively in 2017.
The policy focus has to highlight the issues of 85 percent of the workforce who are employed in the informal sector. The priority issues are: how to ensure decent employment to this great majority of the labour force and how to raise their earnings within their present job statuses if they have no choice but to remain there.
The analysis shows that employment does respond to economic growth in the short-term, implying that growth is not jobless in Bangladesh. It also shows that Bangladesh has created a significant number of jobs over the years. However, the nature of the jobs created is not fully satisfactory as most jobs are low skill-intensive, low-paid, and belong mostly to the informal economy. This shows that rapid growth alone will not be sufficient to create more and better jobs; there has to be a focus on policies that can boost quality job creation. Further, a continuous decline in employment elasticity of growth seems to be happening in Bangladesh which needs greater policy attention.
At present, major challenges of Bangladesh's labour market relate to two aspects—employability and inequity—that significantly undermine the development potential of the economy and its transition to a higher growth trajectory. While the short-term responses to these challenges require adoption of both formal and non-formal vocational, technical and skill-based education and training for wage employment and/or self-employment of the labour force, the medium- or long-term strategy involves appropriate adjustments in the country's education and health systems with emphasis on early childhood education and healthcare. For graduating to a knowledge-based economy in the medium- to long-term, what is important for Bangladesh is to effect major changes in its education and healthcare systems to effectively reap its demographic dividends.
While the government has put emphasis on expanding pre-primary education along with primary education for all, the approach should also enhance the quality and equity aspects of education and incorporate the comprehensive elements of a successful skills development strategy covering the entire lifecycle of the future labour force. The central role in the approach should be the development of soft skills, which needs to start at the pre-primary level. This requires close coordination between pre-primary schooling and child health initiatives, the two central pillars of early childhood development.
Mustafa K Mujeri is the executive director of Institute for Inclusive Finance and Development (InM), an independent non-profit research and training institute, Bangladesh.