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What is the impact of the reduced population growth of other countries on economic development?

Reduced population growth coupled with an outstanding development policy environment produced the “East Asian miracle” something that has eluded the Philippines, even while it is geographically in the region. Lower dependency ratios, a large working-age population and a growing economy resulted in rapid economic development.

South Korea, Taiwan, Singapore, and Thailand are among the first group of less-developed countries (LDCs) to achieve low total fertility rate (TFR) in the world. From the 1960s onward, these countries abandoned the idea that a large population was a source of strength. This assumption was replaced by the idea that population growth was an impediment to development goals.

Between 1975 and 2000, Thailand’s per capita income grew to eight times, Indonesia 6.5 times and South Korea 10 times. The Philippines could only manage 2.6 times but it had the highest population growth rate among the three at 2.36 percent a year on the average.

The East Asian miracle can be attributed to these countries taking advantage of their ‘demographic dividend’ or the rise in the rate of economic growth due to a rising share of working age people in a population. The demographic dividend was made possible by reduced fertility.

The East Asian demographic transition of the past fifty years is the fastest demographic transition to date. Modern transitions are faster because countries gain the benefit of knowledge, experience, or technology developed by others.

The Philippines has a large working-age population, but why does this not translate into economic growth?

While the Philippines has a large working-age population, the dependency ratio is equally high. Moreover, not all who belong to the working-age group are gainfully employed.

For every 10 working adult, there are 7.2 dependents. There are 51 million Filipinos of working age (15-64 years old). Of these 4.1 million are unemployed and 10 million are underemployed.

“Demographic dividend” (or the rise in the rate of economic growth due to a rising share of working age people in a population) does not occur automatically. It is achieved through the right combination of national policies. Without the right policy environment, it is possible that the Philippines will miss the opportunity to secure growth.

The demographic dividend is delivered through three main mechanisms – labor supply, savings and human capital.

As long as the labor market can absorb the labor supply, per capita production increases. Sluggish economic growth unable to absorb new labor will lead to a large unemployed/underemployed working-age population.

A large working population encourages the growth of savings, improving the overall prospects for investment and growth in the country. However an economy unable to generate wages that exceeds subsistence levels is not likely to generate savings.

A working population able to save will invest in education and health – essential investments in human capital. The long-term gain is a society that is more productive, promoting higher wages and a better standard of living.

The three mechanisms of demographic dividend – labor supply, savings and human capital – are all highly dependent on the national policy environment.

Is it sound reasoning to claim that “Because we’re a young population, we can afford to export workers?”

No. Labor export is not a sound long-term development strategy. Filipinos are in effect investing resources on people who will spend their productive years overseas and pay their taxes (to finance social services) in another country. Current migration policies in rich countries require high-skilled workers to fill the gaps in their postindustrial economies – prompting brain drain in the Philippines. Remittances are a short-term solution to an economy in a permanent state of crisis.

While the benefits of labor export are self-evident, the costs are not necessarily so. Aside from the stress put on families having to cope with loved ones gone for long periods of time, what are the societal costs? Many developing countries, including the Philippines, allocate a substantial amount of government expenditure on subsidized education. As the government encourages labor export, local taxpayers are in effect shouldering the cost of educating a worker who will spend much of his/her productive years overseas. Migrants will also be paying taxes to their respective host-countries, not the Philippines.

Emigration in the past few decades was spurred initially by the dislocations of the global economy in the early 1970s, and then institutionalized by successive administrations after Marcos. What was meant to be a temporary phenomenon has become a permanent feature in Philippine policymaking landscape.

In the first instance, ‘exporting’ workers yields monetary benefits in terms of remittances. There can be no discounting the economic safety-net provided by a migrant member of the family. It can be said that these families are providing for themselves the services and economic security that government is unable to provide.

In recent years, advanced industrialized economies have also been selective in their labor import. More and more they require high-skilled workers, prompting brain drain.

Development economists question the long-term sustainability of migration and remittances as a strategy to pursue development. The infusion of external capital from OFWs would help spur economic growth if there exist institutional mechanisms to channel these into productive, and not merely consumptive, activities.

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