Iran is well positioned to reap the economic benefits of a potential nuclear deal, especially since its young working age population is expanding. According to Farzaneh Roudi, the prospect of removing sanctions under a deal could “help Iran transform its economy to accommodate its large and educated labor force.” The following are excerpts from the latest edition of the Wilson Center Middle East Program’s Viewpoints Series.
Iran is poised to reap a vast “demographic dividend” if the appropriate national and international policies are adopted, including a nuclear deal with the P5+1 (five permanent members of the UN Security Council, plus Germany). The demographic dividend is the accelerated economic growth that countries may experience when the working-age population expands relative to the total population, as is the case in Iran today. When more working-age adults have fewer children to support (because of declines in fertility), a country has a window of opportunity for rapid economic growth if the appropriate social and economic policies are in place. A nuclear deal that leads to the removal of economic sanctions on Iran could provide just this opportunity for Iran: a chance to participate in the global economy on a much greater scale and create the most needed jobs for its large and relatively educated labor force.
More than 4 million students are enrolled in higher education and, over the next four years, will be poised to enter an extremely tight job market. Currently, an estimated 2.5 million to 3.0 million working-age adults are unemployed and looking for a job, even accounting for the large number of Iranians who continue to emigrate. Iran has experienced a significant brain drain since the Islamic Revolution in 1979. But, with the prospect of a nuclear deal and removal of sanctions, Iran could benefit from its large diaspora, who largely live in the West, by engaging them in the economy directly as investors or indirectly as a bridge between businesses outside and inside the country.
Iran is among the few countries in the Middle East and North Africa region, and in the Muslim world generally, that have completed the “demographic transition”—the shift from high mortality and fertility to low mortality and fertility. As economies develop and people’s education and health improve, death and birth rates start to decline. Death rates usually decline before birth rates do, resulting in a period of rapid population growth. In Iran, between the censuses of 1976 and 1986, the population grew rapidly, at an average of 3.9 percent per year (3.2 percent from natural increase and 0.7 percent from immigration). According to UN estimates, Iran reached its peak of 4 percent annual population growth in the early 1980s. The country’s population more than doubled in 30 years, from 34 million in 1976 to 71 million in 2006. It reached 78 million in 2015.
As countries complete their demographic transition, the size of the population eventually stabilizes if the total fertility rate (lifetime births per woman) settles at close to two births per woman—the rate at which couples replace themselves. The experiences of countries that have completed their demographic transitions, however, show that fertility often continues to fall below the replacement level. This has been the case in Japan and many European countries, as well as Iran. It has joined the group of countries whose fertility has been below the replacement level for more than a decade. Today, women in Iran have an average of 1.8 children.5 Life expectancy at birth increased from 52 years in the early 1970s to 74 years today, largely due to declines in infant and child mortality, which have pushed up average life expectancy.6 In the 2 early 1970s, 1 in 8 infants in Iran died before reaching their first birthday, but by early 1990s, this ratio decreased to 1 in 24. By the early 2010s, it fell to 1 in 62, resulting in a much larger percentage of infants reaching adulthood and, in turn, having their own children. Today, Iran’s infant mortality rate is less than half of the world’s average.
With its declining fertility and rising life expectancy, Iran’s population has grown older: its median age rose from 17 in 1986 to 27 in 2011. In the 1970s and 1980s, nearly half of the population was under age 15, but that declined to only about a quarter of the population in 2011 (see Figure 1). Iran’s age structure has thus shifted: the working-age population (ages 15 to 64) grew from 52 percent of the total population in 1986 to 71 percent in 2011, presenting the country a “demographic window of opportunity” and positioning it to reap its demographic dividend. The dividend can occur when its age structure shifts toward more people in the working-age group relative to children and the elderly. With fewer dependents to support, a country has the potential for rapid economic growth if the right social and economic policies are in place to enable a young, educated population to enter the labor force and contribute to increased productivity and economic growth. The opportunity must be seized before the share of working-age population shrinks, as it grows older. In Iran, the proportion of the elderly population ages 65 and over is expected to grow rapidly from 6 percent in 2011 to 20 percent by 2050, as the baby boomers of 1970s and 1980s reach age 65.
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