The demographic bonus could be the key to reach sustainable development. To seize it, it necessary to implement certain measures in a systematic and quick way.  

By Martin Padulla for staffingamericalatina

According to estimations from the United Nations, the share of population older than 60 years old will grow in every country till 2050. It is expected that they will consume more than what they will produce.

Latin America is growing old. We are still young, but we are getting older. By the mid 20st century, the annual growth rate of the regional population was 2.8%, while it currently is 1.2%. The good news is that we still have the demographic bonus.

The “demographic bonus” is the period of time in which the working age population (youngsters and adults) outnumbers the dependent population (kids and elderly people). This situation provides a growth opportunity for the saving rates and the economies, as a larger share of workers does not only mean a smaller number of dependent people, but it also promotes economic growth through the rise of income and the accelerated accumulation of capital.

There are more cautious authors who talk about a window of demographic opportunity, as they consider that the concept of bonus has a positive connotation that does not always match the reality. If we fail to do what is necessary, the following generations will pay the consequences.

In the G-20 there are three very differentiated groups: the old countries, where the demographic window has already closed down (England, Italy, France, Germany and Japan); the countries where the window will be closing during this decade (Canada, Australia, the United States, Russia and Korea); and the countries that still have several years ahead (China, Argentina, Brazil, Mexico, Indonesia, Turkey, Saudi Arabia, India and South Africa).

Most Latin American countries are going through the demographic bonus period. There are certain countries that are younger than others, but we are all facing a great opportunity. The advantages of the demographic bonus become tangible as the working age population is successfully placed in the labor market. The challenge is to transform the concept of “working age population” into “talent”, into “human capital”.

It is vital to design training programs of skills based on the short, medium and long-term demand. Productive investments are directly linked to fair and competitive rules, and talent to develop them.

Young people can only get a well-paid job, with future professional development opportunities in a formal labor market. The scourge of informality in Latin America is in the antipodean of the demographic bonus.

When we analyze the global workforce and notice that only 20% has a traditional permanent contract, the conclusion is that we need to modernize regulatory frameworks and promote non-standard contracts, particularly those that provide a better balance between the flexibility organizations need and the security workers require. Those countries that have promoted this type of contracts have low unemployment rates and very low labor informality rates. In other words, we need to start talking about the different types of labor contracts as standard contracts are no longer standard.

A study developed by Oxford University in 2016, points out that 57% of the human workforce in OECD countries might disappear due to automation and technological advances. This means that modernizing our regulatory frameworks so they better fit the current reality of the labor world only solves one part of the problem.

This year, Finland will be the world’s lab of the universal basic income. The pilot program will last two years and benefit 2,000 citizens.

The concept of universal basic income is not new, it has supporters and detractors. Some basic questions that are in the core of the debate and need answers are the following: is it a social mobility factor that stimulates training for the future of work or does it only promote consumption? Does it reduce poverty and marginality or does it perpetuate it and legitimize it?

Mexico and Argentina are studying this issue. The mere fact that it is being debated is very interesting. Argentina is even thinking about implementing a pilot test similar to the tests being implemented in Finland and Canada. In a context where technological unemployment still does not have an elevated impact, but can pose an important threat in the short term, the initiative being debated in the South American country might be relevant. Besides, pilot tests may correct and optimize designs, something key in a topic that has too many aspects. A wise methodology to elaborate State policies.

The promotion of entrepreneurship is another important point in this period, which has two major impacts: the first is to become a source of employment for young people, while the second is to make the economy and the labor market more dynamic through the creation of enterprises.

In Chile, it is estimated that the window of demographic opportunity will be closing by the end of the first quarter of the century, particularly given the low fertility rates.

In Argentina, it shall be closing by 2035. The country has the conditions to reach development if time is properly used. But it must speed up, strengthen public education, create quality jobs, tackle informality, generate savings’ incentives and guarantee fair institutional play rules, among other things.

Implementing the correct measures and making institutions work in the bonus favor and not against is key. If this topic does not become a key priority in the agenda, the bonus becomes a liability that will have a negative impact on our children, as we will have missed the opportunity of development.

We have an amazing leverage: we can observe what happened in countries that have already grown old and did not become wealthy, which obviously have serious problems. We can learn from mistakes made by old countries that are wealthy but, for example, have excessively generous pension systems.

Poorly invested dividends can also become a liability as, in the future, aging will put pressure on the public budget, increasing the share of retired people and of health expenditures. It is no casualty that many already aged countries are rethinking their social security systems, including how these systems are financed and the retiring age of the working population.

There is plenty of work to do. We are jeopardizing the future of work and the opportunity of development. The challenge is monumental.

About Martin Padulla

Founder and Managing Director of staffingamericalatina. Martin Padulla is Sociologist (USAL), MBA (UCA) and labour markets expert. He published “Flexible Work in South America” and “Regulatory framework for private employment agencies in Latin America” two books about the new realities of work in Latin America.

Follow Martín Padulla on Twitter: @MartinPadulla

mpadulla@staffingamericalatina.com

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