Demographic transition and declining in fertility rate: the labour productivity matter

Demographic transition (declining mortality and fertility rate) experienced by Indonesian population in the last four decades has led to changes in the age structure of the population significantly. The decline in mortality rate has been one of the causes of increase in life expectancy and old-age structure of the population. The higher life expectancy caused by better health may improve worker productivity. Declining fertility rates has been followed by increased \u27proportion of the working age population\u27 / WAP (15-64 years). Experience in some newly industrialized countries (NICs) as well as some developing countries show that the decline in fertility rates has led to the increase in economic performance. This condition is due to the burden \u27young people\u27 (0-14 years) to the WAP relatively becomes smaller. The young dependency ratio which is smaller has provided benefits to the economy. Falling young dependency ratio to the total dependency ratio contributed to the economic growth. Another consequence of the demographic transition is the shift to having fewer but better educated children, which lead to more available aggregate human capital and increasing labour productivity in the future. The paper examines the impact of demographic changes on labour productivity in Indonesia based on data of 33 provinces from 2006 to 2012. Results of the study show that the young dependency ratio has a significantly negative effect on labour productivity in Indonesia. While the old dependency ratio, number of labour force and education levels have a positive effect on labour productivity in Indonesia