Demographics & Economy: How Demographics Drive the Indonesian Economy
It is always important to be aware of the direct (and close) link between a country’s population and national economy. A large population size, especially in combination with high growth/birth rates, implies the availability of a large workforce and strong domestic consumer market. This subsequently has a positive impact on the national economy.
Or to put it more accurately, when a country has a big and growing population, there is at least the potential of having a productive and innovative workforce that spends increasingly more on a variety of products and services thanks to the monthly wages they receive, thereby being the engine of the country’s economic progress[1].
The word potential is used above as there exists a set of conditions that determines whether a country benefits (economically) from its own population (or is burdened by its population). Therefore, countries with big populations face specific challenges before they can truly tap the potential of their big and growing populations.
For example, when a country has a big workforce but many (or most) of these people are chronically ill, or, unemployed because there are few employment opportunities, or, have not learned relevant skills and knowledge, then they are not productive for the national economy, implying huge missed opportunities.
In fact, instead of the so-called ‘demographic bonus’, it could cause the ‘demographic burden’ when the state needs to spend big amounts of money on social aid programs (including government-subsidized healthcare), implying there is less public money available for (productive) social and economic development programs.
And so, a key challenge for any government, but especially governments of emerging economies with enormous populations (where poverty typically forms a persistent problem), is to offer high-quality and affordable education and healthcare, while at the same time trying to push the millions of workers and micro/small entrepreneurs from the informal sector (which tends to be very big in the developing markets amid widespread poverty) into the formal sector.
Having society move from the informal sector into the formal sector is important as it leads to improved tax revenues for the government (money that is, ideally, spend on productive social and economic development programs), but it also brings crucial advantages for the individual.
As the informal sector involves jobs that aren’t regulated by the government, it can jeopardize workers’ health (in case they need to perform dirty or dangerous work), while informal sector workers also tend to miss out on specific benefits (including social protection programs such as contributory pensions or health, unemployment and disaster insurance).
[1] The "four wheels of economics" usually refers to the four fundamental factors of production in economics, namely: (1) land, (2) labor, (3) capital, and (4) entrepreneurship. These are, essentially, the key components that drive economic activity.
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