Lesson 4 — Ageing, Demographic Dividends

Why does the 1st demographic dividend dissipate with ageing?

Because it relies on a temporarily large working‑age population created by falling TFR; once ageing begins, this structural advantage reverses.

1st DD: core mechanism

Falling TFR increases the share of working‑age individuals relative to dependents.

1st DD: transitory nature

The 1st DD is purely demographic and exists only during part of the demographic transition.

1st DD: projections (Mason & Lee)

By 2050, the 1st DD will disappear in regions like the West, Japan, HK, and Singapore.

1st DD: effect of ageing on growth

Ageing reverses the large working‑age advantage, reducing labour supply and slowing growth.

What differentiates the 2nd DD from the 1st?

The 1st DD is driven by falling TFR; the 2nd DD is driven by behavioural changes induced by longer life expectancy and weaker family support systems.

2nd DD: human capital investments

More human capital spending among the aged: healthcare, retraining, skills upgrading, working longer.

2nd DD: why elderly invest more

Fewer children + rising life expectancy → elderly need to remain self‑sufficient.

2nd DD: life‑cycle reallocation

Longer life expectancy; higher savings for self-reliance behaviour, capital deepening

2nd DD: savings mechanism

Households save more for retirement; falling TFR reduces family support, strengthening self‑reliance.

2nd DD: timing requirements

Requires early behavioural change and early policy action; late‑ageing countries risk losing gains.

Key takeaway of 2nd DD

Ageing can increase growth if the right political, economic, and social conditions unlock the 2nd DD.

When should the 2nd DD occur?

Theoretically anytime, if policies induce correct behaviour; realistically after Stage 3 when TFR has fallen.

What happens if 2nd DD policies are implemented too late?

Countries miss much of the 2nd DD potential if policies are introduced too late.

What is the 3rd demographic dividend?

A productivity‑based dividend leveraging the experience, tacit knowledge, and mentorship capacity of older workers and retirees.

Misconception about productivity & ageing

Productivity does not necessarily fall with age (WHO evidence).

Why productivity may fall with age

Routinization, low motivation, and poor job‑skill matching—not age—often reduce productivity.

How productivity can increase with age

In supportive, age‑inclusive environments, older workers can remain highly productive.

3rd DD: extracting more value for older workers

Create age‑inclusive workplaces and incentivise businesses to retain older workers.

3rd DD: retaining older workers

Invest in healthcare and design accessible, ergonomic workplaces to extend working lives.

3rd DD: policies for retirees (formal)

Tutoring and knowledge transfer in early, primary, secondary, and tertiary education.

3rd DD: policies for retirees (informal)

Mentorship, community work, NGO involvement, and volunteer activities.