How to recover from a pandemic? The case of the Mexican demographic bonus

Currently Mexico and Latin America maintain stable population growth, which in these times of economic recovery as a result of the Covid-19 Pandemic is extremely important, as it will allow the development of strategies for macro reactivation of our economies.

Of the 50 countries that have the most elderly people in the world, 41 are in Europe and only 4 in the Americas: the United States, Barbados, Cuba and Uruguay. The rest of our continent is still “young” enough, which means that there are currently “few” older adults in our nations. According to United Nations data, in Japan -for example- 28.4% of its population is 65 years or older, while in Mexico the population with this age is only 7.6%.

If we need to generate more public policies to reactivate our economies, promote employment, innovation and in general contribute to the generation of wealth in our countries, our main need is human capital (Economically Active Population or EAP). That is why aspects such as the demographic bonus are so essential to understand how well positioned (or not) we are for the upcoming years in terms of human resources. But what is the demographic bonus and why is it important to understand it?

In short, we speak of the demographic bonus of a country, as the state of demographic “surplus” of people within working age, in proportion to the total population. It is seen as a "bonus" because it is very favorable that there is a high population of productive age that can contribute to the economy of a nation. In this way, more taxes can be collected and economic development promoted in all forms.

Let's look at a more specific example of the demographic bonus in Japan, and how it compares with that of another country that has a very similar population size and that is a case we are interested in understanding: Mexico. For that, let's quickly analyze the following chart.

Broadly speaking, the first thing that we might notice is the above mentioned: Japan has about 126.5 million people (as of 2020), while Mexico has an approximate of 129 million. Could it be said that both nations have the same capacity to sustain their economies in an efficient way if we only compare the demographic factor?

To better answer this question, we could categorize both populations into three broader age groups: from 0 - 19 years for the infant-adolescent population, from 20 - 64 for the economically active population (the EAP is counted from the age of 15, however for the purposes of this analysis we will draw the line at age 20 since it is usual that before that age youth are still studying or with informal jobs), and finally 65 - 100+ years for the regularly retired population or those with limitations to continue working. By making these new groups and comparing the specific percentages we can better understand the concept of demographic bonus.

Japan currently has almost 36 million senior citizens, while Mexico has close to 10 million (purple section). Assuming in general terms this population no longer works and is retired, the Government of Japan would be responsible for allocating more economic resources - perhaps even more than three times that of the Government of Mexico - to serve its elderly population with medical care, non-contributory pensions or any other sort of public assistance. As these people no longer generate money, they will live primarily on their savings, pensions or family and / or State support. Where does the Government take money to provide the necessary help? It will do so through what it collects via taxes or with the issuance of public debt, among other ways. For the collection of taxes and in general the generation of wealth, the governments need the EAP, so then we will see how this section is found in both countries.

In the green section, the situation at the population level seems to be quite similar for Japan and Mexico, with the Asian country having 70 million people of productive age while the Latin American one has 74.5 million. However, we already know that these 70 million Japanese are "in charge" of providing for the nation's economy, making sure that they, as well as the 36 million older adults and the other 21 million children and adolescents, have adequate living conditions. and live well. The 74.5 million Mexicans have a "lighter" weight, since the State's expenditures for the elderly population are comparatively lower, and they also have a large number of people who will "take over" them when they start their productive age, which are those of the orange section.

This last section is at the same time that of the future of the nation; people in training and who are also generally economically dependent and require investment in education, health, care and other considerations. Japan has 21.5 million people in this age group compared to 44.5 million Mexicans. These people will eventually have to produce so that the Government has sufficient resources and thus contribute to the maintenance of the other dependent demographics.

This analysis allows us to quickly understand that Japan has a significant demographic challenge because its EAP needs to produce enough resources to guarantee protection to the other populations that do not produce. Mexico's EAP, for its part, has a lower elderly dependent population, and a still child population sufficient to contribute to economic development. Demographic bonuses give us insights into how prepared we currently are to sustain ourselves and sustain people who can no longer fend for themselves. The Mexican population of productive age can take advantage of its human capital to produce economic well-being that allows it to live well for itself and the other dependent generations. Likewise, the State has to think “less” (unlike the Japanese State) about how to have sufficient economic resources to face the challenges of the present and the future.

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