Key challenges to attaining the first demographic dividend
The demographic dividend is the accelerated economic growth resulting from declines in fertility and mortality and the subsequent change in the age structure of a country’s population. It refers to accelerated economic growth that can occur when a country’s working-age population (typically ages 15–64) is large relative to dependents (children ages 0–14 and elderly ages 65 and above). In the midst of the demographic transition, Bangladesh is currently experiencing changes in its age structure, with two-thirds of the population in the working-age group. This could provide a stimulus for the first demographic dividend, as the country’s dependency ratio has significantly declined over recent decades, offering a key opportunity to accelerate economic growth — provided the workforce is productively employed and healthy.
To fully reap the benefits of this demographic opportunity, which should remain a top priority on the political agenda, it is essential to act within the timeframe to maximise the gains of the first demographic dividend by 2036, according to the National Transfer Accounts (NTA), while the dependency ratio is projected to reach its lowest point in 2045 (World Population Prospects 2024 Revision). This offers a unique economic opportunity, but realising it requires strategic, coordinated reforms in education, health, labour markets, economic and social policies, and good governance. Without such actions, the potential dividend may remain unrealised. To reap the benefits of the first demographic dividend, Bangladesh needs to address several key challenges that hinder it.
First, high youth unemployment and underemployment: In Bangladesh,youth unemployment remains significantly higher than the national average, and underemployment is also widespread — many young workers are in low-paying or informal labour markets that underuse their skills. Educated youth often struggle more to find jobs that match their qualifications, pointing to structural weaknesses in the economy’s ability to create high-quality jobs. In addition, job creation is not keeping pace here. Economic growth has not consistently generated enough decent formal employment to absorb millions of new job seekers each year. Informal sector jobs often lack job security and productivity. A heavy reliance on traditional export sectors, such as ready-made garments (RMG), limits diversification into higher-value industries that could create more jobs and better wages. Here, high youth unemployment underutilises workforce potential and hinders successful employment growth.
Second, mismatch between education and market needs: Although enrolment and literacy rates have improved over the years, the quality of education remains weak. It often does not equip students with market-relevant skills, especially in technology, communication, and vocational fields. Limited emphasis on practical, creative, and high-value skills means that many graduates are unemployable in sectors driving future growth. Educational mismatch limits employability and innovation, thereby affecting the ability to ensure a high-quality human resource base.
Third, low female labour force participation: Women’s labour force participation is notably low compared to men. Cultural norms, safety concerns, and limited access to training and good jobs restrict women’s economic contribution—a critical untapped workforce. Low female participation reduces labour supply and productivity. High prevalence of child marriage adversely affects female education and formal labour force participation. Without ending child marriage, it is difficult to achieve the gender dividend. Several barriers such as inequality of opportunities at the household level (e.g., lack of nutrition, education, health care) as well as at the community level, absence of childcare facilities at the workplace, lack of women-friendly transportation facilities, violence against women both in the workplace and outside, social stigma still prevent many women from participating in the labour market.
Fourth, underinvestment in human capital: In Bangladesh, annual budgetary allocation is not conducive to a demographic dividend as it ignores education and health, the two most essential components of human capital. This is a time when the country needs to increase allocations to the education and health sectors to build human capital, yet allocations have been decreased. Besides, there is a gap between budget allocation and the government’s policy documents. Bangladesh spends a relatively low share of GDP on education and health compared to international recommendations, limiting improvements in workforce quality and long-term productivity. Health system limitations, including shortages of skilled professionals and rising non-communicable diseases, reduce overall workforce productivity and well-being. Underinvestment in health and education weakens human capital. The return on investment in the health and education sectors is promising but the budget is not being allocated, as it should be. There needs to be investment in the financial sector to generate employment.
Fifth, low rates of savings and investment: Bangladesh is currently facing challenges with low domestic savings and investment rates, primarily driven by high inflation, low real interest rates, and a challenging business environment. The country should aim to accelerate Foreign Direct Investment (FDI) to compensate for low domestic savings and leverage its favourable investment climate. However, the country faces ongoing challenges with bureaucracy and infrastructure as current inflows are low, hindered by weak policy consistency, complex regulations (licensing, land), tax burdens, and infrastructure gaps, requiring significant reforms in governance, infrastructure, and investor facilitation to boost confidence.
Sixth, urban infrastructure and planning strains due to unregulated migration: Rapid rural-to-urban migration places immense pressure on cities like Dhaka, the only primate city in the country, leading many workers into informal settlements with limited services, worsening quality of life, and economic potential. Infrastructure deficits (e.g., in transport and energy) further constrain business growth and employment expansion. Here, infrastructure gaps constrain economic growth. Additionally, quality public institutions are required to provide effective, accountable, and equitable public services.
Seventh, environmental and resource pressures: Environmental pressures threaten sustainable livelihoods in Bangladesh. The country is one of the most densely populated territories, with limited land. Here, population pressures contribute to land degradation, wetland loss, and resource strains that affect agriculture and livelihoods, thereby impacting economic stability and food security.
If the above-mentioned structural challenges aren’t urgently addressed, Bangladesh risks turning its working age population, including its youth population, from a potential advantage into a demographic burden with stagnant wages, youth unrest, and rising inequality undermining long-term development, and shrinking the demographic window of opportunity. Here, the key enablers of success may include expanding quality job creation beyond traditional sectors, reforming education to match industry demands, closing gender gaps in employment, investing more in education and health — strengthening health and social support systems, and building resilient urban and physical infrastructure.
Drawing on examples from other countries, such as East Asian countries, Bangladesh can learn lessons. Evidence suggests that the critical policy areas that made the difference included investment in youth development, expanding access to family planning, investment in infrastructure, public health, education, especially female education, and skill development. In addition, policy emphasis was on promoting both labour-intensive and skill-intensive jobs, savings, and openness to trade and foreign investment.
The Government of Bangladesh and other respective stakeholders should emphasise issues like a quality human resource base, successful employment growth rate, an increase in female participation in the labour force; economic reform and favourable investment, high rates of savings and investment, and quality public institutions, to reap the benefits of the first demographic dividend. At the same time, the country also needs to focus on achieving the second demographic dividend too, as the country is one of the fastest-growing ageing populations and will be transformed into a ageing and aged society in the future. Thus, improving education with technological skills in line with age structure will be necessary. There are also pieces of evidence from other country cases that the demographic dividend is driven by human capital.
Declining youth dependency ratios even have negative impacts on income growth when combined with low education levels. Based on a multidimensional understanding of demography that considers education alongside age, and with a view to the additional effects of education on health and overall resilience, the actual demographic dividend is a human capital dividend. The Government of Bangladesh policies should thus focus on strengthening the human resource base for sustainable development. Recognising that demographic dividends are also tied to labour quality (not just quantity), Bangladesh’s official policy plans should emphasise on improving education, targeting technical and vocational education with skills, fostering innovation and highly skilled workers to reap the first and second demographic dividend. This aligns with broader economic strategies toward productivity and innovation. Demographic change should remain a top priority on the political agenda for the elected government. The challenge for Bangladesh will be to manage all these transitions together – demographic, democratic, and institutional.
Dr. Mohammad Mainul Islam is a professor and former chair of the Department of Population Sciences at the University of Dhaka. He can be reached at mainul@du.ac.bd
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