The Mekong’s demographic tailwind won’t last forever

The number of years for old age dependency to increase is faster in the Greater Mekong than what developed countries have been through.

This means the region has less time to prepare for the related fiscal costs of an aging population, underlining the need to sustain high GDP growth rates to raise incomes before the region needs to bear a demographic tax.

Closing the gender gap in economic participation has a great potential to usher in a second demographic dividend by increasing the utilisation of labour.

Boost

According to the United Nations Population Fund, a demographic dividend is the economic growth potential arising from shifts in a population’s age structure. A boost in economic productivity occurs when the working-age population (15 to 64 years old) is larger than the non-working dependents (14 years and younger and 65 years and older).

Over the past few decades, ASEAN economies have reaped this demographic dividend as the growth of their working age population was faster than the growth of dependents. But as the International Monetary Fund’s (IMF) warns, the demographic dividend for some Asian countries is about to end.

The Mekong is a microcosm of the varying subtleties of transition in populations in Asia. As of 2016, the share of the working-age group stands at 67 per cent of the total population.

The World Bank’s definition of demographic grouping classifies countries in three ways:

• An early-dividend economy if the working-age population is rising in absolute terms and as a share of the total population;

• A late-dividend economy if the working-age population is rising in absolute numbers but is declining as a share of total population; and

• A post-dividend economy if the working-age population is decreasing in absolute terms and as a share of the total population. 

Based on UN Population forecasts ANZ expects Thailand will be classified as a post-dividend economy by 2020. By then, the median age will be 40.5 years.

The speed of ageing in Thailand is remarkable given the country’s population will likely breeze through the late-dividend stage over a mere four-year period.

Vietnam entered the late-dividend stage in 2014 when the median age was 30.0 years. With its population ageing at a moderate pace, Vietnam will likely have a window of more than 20 years before entering the post-dividend stage. 

Cambodia, Laos, and Myanmar have some of the youngest populations in the ASEAN. Still at the early-dividend stage, these countries will see their working age populations grow in the coming decades.

Dependency

While the period of transition to ageing varies across the Greater Mekong the speed of ageing is also notable. Compared to Europe and the US, where the transition occurred over 26 and 50 years respectively, the transition for most of the Greater Mekong is shorter. The transition will take Thailand nine years, while Vietnam, Laos, and Cambodia will have less than two decades.

This speed implies the Mekong will have less time to prepare for an ageing population and the related fiscal requirements. Also, the region will have less time for their incomes to play catch-up with the developed markets. Specifically, Greater Mekong economies will likely be facing the demographic tax at lower levels of economic development.

Narrowing the gender gap in economic participation may provide a potential source of economic growth dividend in the Mekong, mitigating the risks surrounding the ageing transition.

The Global Gender Gap Index in 2016 estimates the gap in economic participation is now at 58.6 per cent. A score of 100 per cent is defined as having closed the gender gap.

In Greater Mekong there is room for narrowing the gap in economic participation. In terms of labour force participation rate, Laos is the only country that has fully closed the gender gap. In fact, the female labour force participation rate is higher than males at a ratio of 81:78.

 On the other end of the spectrum is Thailand, which has 70 per cent of females participating in the labour force compared to 80 per cent for males. 

Clearly, a large gender gap denotes a significant under-utilisation of labour resources.

ANZ looked at the possible growth dividends if the gender gap is closed, thereby increasing the labour utilisation in the Greater Mekong.

First, if the region pursues policies that raise the female labour force participation rate to the same level as males, Thailand would gain an additional 3.95 million workers.

Assuming we keep estimated earned income constant, equalising the participation rates would increase total female earnings to equivalent to 4.7 per cent of GDP in Thailand.

On the other hand, if we assume participation rates are held at current rates, equalising the estimated earnings to the males’ level would have a greater effect.

Cambodia, with its 78 per cent female labour force participation, has a potential to increase its female earnings by as much as 8.8 per cent of GDP. Vietnam, with its relatively narrow gender gap in earnings, can raise female incomes by 4.8 per cent of GDP.

Eugenia Victorino is an Asia Economist at ANZ