Economy 5 MIN READ

The Philippines’ demographic dividend: A springboard for economic growth

With a large, educated workforce coupled with a relatively stable population growth, can the Philippines transition to a high growth economy?

June 23, 2023By Marco Siy and Renzo Tan

The Philippines is in a good position to reap the rewards of good demographic dividends. According to a June 2023 data report of Philippine Statistics Authority (PSA), the country’s median age is 25.3 years old, which is one of the youngest median ages in Asia. The household population by age group also favors those in the 15- to 64-year-old range, who take up 69.3 million out of the total population of 109 million. These figures seem to promise a strong and stable workforce for years to come.

This relatively young, low median population can potentially push the country’s economic future forwards even after our neighbors’ workforces have begun to shrink.

The three phases of demographic transition

Demographic dividends refer to the economic benefits that result from a country’s changing age demographics, particularly when the working-age population grows relative to the non-working population. An economy can be divided into three age groups that are associated with a particular phase of transition.

The first group contains the youngest individuals who have not yet entered the workforce. Countries with a large portion of the population comprising this group typically have high birth rates, rapid population growth, and low mortality, which are typically associated with the first phase of the demographic transition. Although currently unable to work yet, this young population will eventually contribute to a strong economic workforce, known as the early phase of population dividends.

The second group consists of workers who drive economic growth. Countries with a large portion of the working-age population are usually in the second phase of the demographic transition. Previously dependent young individuals start working, boosting the aging but still productive workforce. Both the incoming and existing working generations collaborate to create a large working-class population. However, the demographic dividend, or its window of opportunity, has a limited duration since the percentage of older individuals increases.

The third group comprises retirees and pensioners who have finished their working years. Similar to the youngest group, they rely on the working-age population for support. Known as the late phase, the older generation retires from the economy, with a minority still engaged in work. The country’s demographics shift toward an older population dividend.

The case of the Philippines

The Philippines is currently still in the first phase of this process and has yet to transition to the second phase. The Philippines’ population growth is stable as seen from the population pyramid on the left below. We can see those retirees older than 65 make up only a minority of the population, while the youngest demographics are the majority.

This structure of having more young people than old ones – coupled with the Philippines’ still positive yet decreasing fertility rate of 2.77 children per woman – suggests that there is reasonable population growth still occurring.

The Philippines is only in the first phase of demographic transition, characterized by a large proportion of the population under 15 years of age.

The population is predominantly made up of young people who are not yet able to work but with the potential to provide a strong working population soon. This abundance of young people within a country may be considered a disadvantage as they still require substantial resources, such as food, health services, school, etc. But their presence is still a good sign for the Philippines, as they would eventually become that is if enough resources are there to improve human capital.

How are other countries faring?

As an economy that is still in the early phase of demographic transition, the Philippines’ population representation still takes a regular pyramidal shape, with the much younger population taking up the majority s unlike than Thailand’s or Japan’s.

On the other hand, Thailand shows a population where the predominant age groups are those who are 25-60 years old or the prime working age. This phase is best for the occurrence of the demographic dividend and economic growth, but this window of opportunity will cease to exist once the country transitions to the late phase.

Japan is a textbook example of the late phase of the demographic transition where there is a large retiree population being supported by a relatively small working-age population: only possible in extremely efficient economies where the per capita output of a few workers can still support the whole country or where lots of immigrant labor is used.

Recall that the Japanese economic miracle following the Second World War (1945-1960s) is a prime example of a demographic transition from the early to intermediate phase, demonstrating the impact of Japan’s efficient population control. Japan’s population pyramid is now very top heavy which indicates an aging population in the process of declining growth.

Transitioning to the second phase

For the Philippines, our population growth is strong and stable. The National Economic Development and Authority (NEDA) thinks that the Philippines will need to sustain this growth until at least the year 2050 to benefit from the demographic dividend.

Excessive population growth is often a concern to governments due to the fear that a country’s ability to support a population will eventually be outpaced by its growth. This is only true if a government fails to make adequate investments and policy changes to improve human capital.

The Philippine government should focus on transitioning to the second phase to reap from demographic dividend, possibly by the next decade. One specific area that needs investments includes the education sector with a focus on improving technical skills, well-being, creativity, and experiences.

Likewise, a productive workforce with greater economic efficiency is the most important factor when taking advantage of good demographic dividends. The government should also invest in supporting local industries who would need more workers to boost production. Foreign investments like multinational firms can also establish or expand their operations in the Philippines as it has a huge surplus of young, multitalented, work quality-oriented and highly trainable workforce.

In the second phase of demographic dividend, an educated and employed population could naturally cause birth rates to stabilize at a sustainable level. The eventual upside to this is higher consumption that translates to economic growth.

(Edited by Ina Calabio, Bea Lejano, and Geraldine Wambangco)

RENZO TAN AND MARCO SIY are interns under the Institutional Investors Coverage Division (IICD) of Metrobank. Renzo is currently studying at the University of Massachusetts Amherst, while Marco is studying at Georgetown University’s McDonough School of Business.

INA CALABIO and ANNA ISABELLE “BEA” LEJANO are Research & Business Analytics Officers at Metrobank. Ina is in charge of the bank’s research on industries, while Bea is in charge of the bank’s research on macroeconomy and the banking industry.

GERALDINE WAMBANGCO is a Financial Markets Analyst at the Institutional Investors Coverage Division, Financial Markets Sector, at Metrobank. She provides research and investment insights to high-net-worth clients.

Read More Articles About: