July 28, 2015

Preparing for the demographic dividend

Written by Prijono Tjiptoherijanto

This post originally appeared on the Jakarta Post’s website here.

Indonesia’s population is now composed of more working-age people (15-64) than ever before, both in absolute numbers — at 157 million potential workers — and as a proportion of the total population, accounting for 56 percent of all Indonesians.

This population structure, which gives rise to what is known as a demographic dividend, occurs when a decrease in mortality and fertility rates produces a bulge in the working-age population with fewer dependents than in previous generations.

The proportion of the working-age population is expected to peak between 2025 and 2030, after which it will decline as the population continues to age.

The current demographic dividend is an opportunity for development that Indonesia is likely only to experience once. If leveraged wisely, the demographic dividend provides the potential for large-scale social and economic benefits.

There is only a window of opportunity from 2020 to 2030 in which this dividend can be harnessed. To reap the benefits, investment must be made in human capital — in the education, health and wellbeing of citizens, particularly of youth. Economic policies must provide a high quantity and quality of employment to fulfill the potential of healthy and educated workers.

With the right investment and policies, the demographic dividend will result in a stronger economy and improved quality of life for Indonesians.

Indonesia has been investing heavily in the education of its young people and it will reap the rewards of doing so. Through high-quality education, Indonesia will be able to produce generations of so-called complex-problem solvers (people with high-level skills), to ensure increased productivity.

Therefore, females should be given greater attention. Twelve years of schooling should be encouraged. Sex education is vital to give young adolescents the knowledge necessary to make good life choices.

To accommodate a growing educated labor force, new employment opportunities must be created. Emphasis must be placed on both participation and productivity to create high quantity and quality employment. Employment opportunities for women, the elderly and young people are important.

As Indonesia grows, it will need to develop a work and family support policy to ensure that women can enter or retain their positions in the workforce. Employment opportunities for the elderly will need to be developed as health improvements extend the average lifespan. Regular, high-quality employment will need to be available for the large cohorts of highly educated youth to prevent emigration overseas.

As such, creative job creation and entrepreneurship should be encouraged and supported. The government must open the door to small and medium enterprises and private investors. The reduction of red tape is imperative; government processes for business development should be quick, straightforward and transparent. The availability of start-up capital and business monitoring systems would also assist in supporting new and creative business development.

Labor productivity will be enhanced by the development of urban infrastructure. With growing labor markets comes increased migration to urban centers. Data and projections show strong and fast urban growth in a number of cities in Indonesia — cities that are not prepared for population growth.

The government must invest in the development of more urban centers with essential business and social infrastructure.

Attention must be given to the needs of all regions, not just Java. An inclusive and inter-regional approach must be taken in the development of government policies. Inclusive development will lead to sustainable development.

With the limited window of opportunity, inclusive discussion, policy development and program implementation need to start now to ensure that Indonesia is ready to take advantage of the working-age population bulge in five years’ time. Education, employment, infrastructure and health are all vital cogs in the demographic dividend machine. Investment made now will continue to benefit Indonesia long into the future and assist it in becoming a regional economic power.

All in all, the long–term fertility decline is the most important factor for accelerating and amplifying the demographic dividend. Access to voluntary, rights-based family-planning, coupled with improved health leads to fewer children and a growing share of working-age adults.

lt is therefore imperative that Indonesia invest in family planning and reproductive health. Governments must make the political and financial commitments needed to ensure voluntary family-planning policies and programs are prioritized and are accessible to all people, including adolescents, and particularly adolescent girls, in the near future.

Concern for population matters should be a high priority for all institutions and actors in the government. Population policies cannot be neglected any longer in Indonesia’s development programs for the coming decades.


The writer is a professor of human resource economics at the University of Indonesia and a commissioner with the Indonesia Civil Service Commission (ICSC).