Prospects of demographic dividend in the Philippines and key lessons from East Asia’s experience

At the turn of the millennium, there were about 28 million Filipinos aged 0-14 who depended on 45 million people of working ages. By 2040, the number of young people will be 31 million – not much of a change, really – but our working-age population will have grown to 92 million by then: twice as large as it was 20 years ago.

This is the source of much excitement for the “demographic dividend”, a rather intimidating term that is quickly becoming a buzzword in the Philippines’ mainstream development discourse. 

From the standpoint of population science, this “dividend” means no more than the change in the population’s age structure, that is society’s large base of formerly young people now matures and enters the labor force, as a result of the decline in fertility and mortality rates. To economists, however, this changing age structure presents a rare “window of opportunity” for accelerated economic growth and raising the standard of living. After all, our well-off East Asian neighbors are classic success stories of how their masses of workers, at their peak numbers, turned their nations into tiger economies.

The ambition

Now, after a long wait (or, rather, decades of shifting population agenda and heated reproductive health debates), the Philippines is finally positioned to reap this so-called dividend. While the Philippine population is still relatively young, we are already witnessing a growing labor force as a result of high fertility in the past (see Figure 1). This is precisely why the National Economic and Development Authority (NEDA) has been touting the concept of demographic dividend in the AmBisyon Natin 2040, the Duterte administration’s development ambition. In this vision paper, the Philippines by 2040, at the supposed height of demographic dividend, is predominantly middle-class, with each family depicted to own a single house and a car and leads a “strongly rooted, comfortable, and secure life” under the great blue sky.

But beyond these starry-eyed prospects of demographic dividend, the ongoing COVID-19 pandemic forces us to confront and root out the long-standing population realities. These have all been magnified in what has been a disaster of a year: widespread poverty and hunger, a broken healthcare and education system, record-high unemployment, and ultimately an economy that is leaving today’s youth and future workers in the lurch. 

Unless these structural issues are finally addressed, there will simply be no demographic dividend on the horizon.

The population question

The story begins with Southeast Asia’s once identical twin.

In 1970, Thailand and the Philippines mirrored each other’s population and economies. Both countries had a 36 million-strong population growing at 3.1% annually, and for both countries, the average number of children a woman is expected to bear during her lifetime, or the total fertility rate (TFR), was about six. Both rice-producing nations had the same gross domestic product (GDP) per capita at about US$190, although the Philippine economy was more advanced, as a matter of fact.

Fifty years hence, Thailand’s population stands at 70 million, while ours is at 109 million. Before the pandemic, the Philippines’ GDP per capita was US$3,485, just almost half of Thailand’s US$7,807. 

For many experts, the explanation for the twin’s diverging fates is obvious: Thailand implemented an active population policy that brought down its TFR from 6.4 in 1960-1965 to about 1.8 in 2000-2005, even well below the roughly 2.1 TFR needed to “replace” their population.^[1] By investing in education and healthcare, and through a careful set of policies, their productive labor force transformed the country into an industrial economy by the 1990s.

Thailand, in fact, was a little late to the so-called economic miracle earlier enjoyed by its neighbors in the broader East Asia, namely South Korea, Japan, Taiwan, Hongkong, Malaysia, Singapore, and Indonesia. As these countries experienced a demographic transition, they also saw a boost in employment and real wages, historic declines in poverty rates, and a regional economy growing thrice as fast as the rest of the world. It is estimated that a third of the East Asian “miracle” can be attributed to the demographic dividend.^[2]

In sharp contrast, the Philippines has been slow at reducing its TFR. By the time Thailand was starting to reap its demographic dividend in 1990, the Philippines had a high TFR of about four, its population pyramid was still neatly triangular, and the official poverty rate was at 40 percent.

From these figures alone, it is easy to conclude that the Philippines’ “unchecked” population growth stalled its economic growth, much like how poverty is usually being blamed on couples “breeding like rabbits.” Not only is this argument lazy and ahistorical, but it also leaves out the bigger part of the picture. At the opposite end of the overpopulation argument is the equally reductive view that development is the best contraceptive, as popularized in the 1970s: progress not only in the economy but in other areas of human well-being precedes the decline in fertility.

Between these two opposing perspectives, it is hard to say with certainty which came before which in the case of East Asia’s economic miracle: both demographic transition and rapid economic development occurred at about the same time. But as these countries have demonstrated, the population was only half of the equation.

Quality in quantity

It is not only in terms of the timing and pace of demographic transition that the Philippines, once Asia’s second-largest economy, has lagged behind its neighbors. Aside from active family planning programs, East Asian countries embarked on at least three sets of policies that Philippine administrations have shunned in the past several decades: an effective agrarian reform program, export-oriented industrialization, and heavy investment in human capital. These are policies that may have helped shape the course of their population growth in the first place.

First, while plenty of analyses of the East Asian miracle sound like paeans to the power of the market, what they often understate is how land reform, as blunt as the expropriation of lands from landlords and their distribution to peasants, paved the way for East Asia’s success (perhaps with the exception of Japan’s landlord relations during the Meiji period). Taiwan’s “land-to-the-tiller” program offers a sterling example: it expanded farmers’ land ownership from a little over 38% in 1952 to 67% in 1965, during which it was experiencing a demographic transition. For the whole of East Asia, despite limited agricultural lands, food output per capita increased by 45% between 1963 and 1992.^[3]

Because East Asia had laid a strong agricultural base and achieved food self-sufficiency, it was able to support its fast-increasing population, defusing the “population bomb” scare propagated by Western authors in the 1960s. Countryside development led to an increase in rural incomes, reduction in inequality, and capital formation for developing export-oriented industries, which absorbed the well-fed and well-educated labor force. Having a solid economic and policy groundwork, East Asian industries have been able to withstand and benefit from increased foreign trade, competition, and technology transfer. And the rest is history.

Meanwhile, having to depend on foreign investments, Thailand did not strictly follow the East Asian route, but much like the latter, its government took the lead in restructuring its capital markets and labor, poured more money into its youth’s education, and expanded economic opportunities for its population.^[4]

Today, much of the Duterte administration’s explicit efforts for reaping the demographic dividend center around bringing down our fertility level, which remains one of the highest in Southeast Asia. This is necessary, if from the point of view of reproductive health and freeing up resources for childcare, but the role of the government is not limited to simply ‘shaping’ the population. As our neighbors’ experience has shown, reaping the demographic dividend is a task that simply cannot be left to the forces of the market: the state certainly should take a more active role in unlocking our population’s potential to the full.

Necessary investments

At the rate things have gone and are going, the country’s prospects of demographic dividend are not as bright as the Duterte administration pictures it to be, after all.

Unlike our neighbors, our agrarian reform program has failed to dismantle large landholdings from landowners and corporations, improve rural productivity, and become a catalyst for industrialization. Agriculture’s share in employment and GDP has been declining over the years, but not because of a rural-to-urban industrial development but as a consequence of pervasive landlessness, hunger, and chronic underfunding of agriculture. Absent a solid industrial base, the share of production sectors in GDP has been on a steady decline and taken over by utilities and services over the last four decades, all while our economy remains import-oriented – and will be increasingly so should current efforts to amend the Constitution’s economic provisions succeed.

This set of weak macroeconomic fundamentals manifest no more clearly than in our employment situation. In 2019 before the pandemic, IBON estimated that 4.1 million adult Filipinos were unemployed, more than twice the official figure, and most of the new jobs added were low-paying, part-time, and informal. In fact, it was estimated that anywhere between 39% (16 million) and 77% (32 million) of employed Filipinos belonged to the informal sector.^[5] It comes as no surprise that in the face of a constricted labor market and lack of job security, adult joblessness soared to as high as 45.5% when the government declared a lockdown last year. A particular area of concern is youth unemployment, which rose from an already high 12.9% in April 2019 to 31.6% in the same month of 2020.^[6]

Even the country’s human capital gains in the last few years are threatened to be, if not already, undone by the government’s failure to respond properly to the pandemic. The pandemic has brought to fore major problems with education, which is one of the poorest in the world in terms of accessibility and quality, according to one international study. This is a direct result of underfunding: only less than 3% of the country’s GDP is spent on education, the lowest in Southeast Asia.

At the receiving end of all this are the country’s youth. To speak of the demographic dividend is to speak of our preparations for their future, including structural changes in areas of education and employment. 

This is a crucial time to rethink our entire strategy for reaping the demographic dividend. While things are bleak from where things stand at present, the experience of our neighbors tells us that a demographic dividend is possible given the right set of policy choices (or “activist public policies,” as the World Bank puts it). This would not be possible without their people actively taking part in the transformation of their economies and societies: while East Asia’s success is often overly credited to their authoritarian governments, much of these states’ actions were in response to public pressure, demographic and cultural changes, and fear of social unrest.^[7] [8]By prioritizing rural development, instituting wealth-sharing mechanisms, and investing in education and its production sectors, our neighbors were able to maximize their gift of population.

In other words, the Philippine government cannot simply anticipate a demographic dividend without putting in the necessary investments in its greatest resource: the people.

^[1] Wongboonsin, Kua, Philip Guest, and Vipan Prachuabmoh. 2005. “Demographic Change and the Demographic Dividend in Thailand.” Asian Population Studies 1 (2): 245–56. https://doi.org/10.1080/17441730500317493.

^[2] Mason, Andrew. 2001. “Population Change and Economic Development: What Have We Learned from the East Asia Experience?” Working Papers 200103. University of Hawaii at Manoa, Department of Economics.

^[3] Ibid.

^[4] Phongpaichit, Pasuk. 1996. “The Thai Economy in the Mid-1990S.” Southeast Asian Affairs, 369–81.

^[5] National Anti-Poverty Commission Secretariat. 2017. Reforming Philippine Anti-Poverty Policy: A Comprehensive and Integrated Anti-Poverty Framework.

^[6] International Labour Organization. 2020. COVID-19 labour market impact in the Philippines: Assessment and national policy responses. The Philippines.

^[7] Ohno, Kenichi. 2013. “The East Asian Growth Regime and Political Development.” In Eastern and Western Ideas for African Growth, 1st Edition, 37–61. Routledge.

^[8] Campos, Jose Edgardo, and Hilton L. Root. 1996. The Key to the Asian Miracle: Making Shared Growth Credible. Brookings Institution Press.