Size of the Labor Force and Demographic Dividends in India

One of the more popular stories in this week's Economist is one about "Angry Young Indians: What a Waste." The issue is that India is not creating good jobs for its labor force in the same way that China has done.

IN THE past 35 years, hundreds of millions of Chinese have found productive, if often exhausting, work in the country’s growing cities. This extraordinary mobilisation of labour is the biggest economic event of the past half-century. The world has seen nothing on such scale before. Will it see anything like it again? The answer lies across the Himalayas in India.

India is an ancient civilisation but a youthful country. Its working-age population is rising by about 12m people a year, even as China’s shrank last year by 3m. Within a decade India will have the biggest potential workforce in the world.

This is a bit of demographic sleight-of-hand on the part of the Economist. According the medium-variant projections of the UN Population Division, China's population aged 20-59 (the prime labor force years) in 2020 ("within the decade") will account for 20.2 percent of all people in the world of that age, whereas India's population of that age will account for "only" 18.3 percent. In other words, Chinese labor force is not yet on the verge of being overtaken by India's.

However, the qualifier "potential workforce" is where the rub lies. In 2020, China's population aged 5-19 will be only 13.0 percent of all people that age, whereas in India, youth aged 5-19 will account for 20.0 percent of all humans that age. This, however, undermines the next paragraph in the Economist's story:

Optimists look forward to a bumper “demographic dividend”, the result of more workers per dependant and more saving out of income. This combination accounted for perhaps a third of the East Asian miracle. India “has time on its side, literally,” boasted one prominent politician, Kamal Nath, in a 2008 book entitled “India’s Century”.

This is just wrong. The "demographic dividend" occurs when fertility falls dramatically prior to the aging of the population. This happened in China, but it is not happening in India. India is NOT on the verge of a demographic dividend. It is, however, on the verge of a continuing large number of young people which its economy probably won't be able to handle.