|Pos.||Old-Age Dependency Ratio (2016)|
Higher is worse
Lower is worse
|166||Bosnia & Herzegovina||37.3||76.63|
Throughout Human history, grandparents have been vastly outnumbered by the young. Now, some countries are entering a new era of wisened human demographics where the balance in reversed: A mixture of increasing longevity and better medical care means that the numbers of those in old-age (65+) are increasing3. Japan had been ahead of the trend for a great while; it is followed by Italy, Germany, Portugal and Hong Kong4. The old-age dependency ratio is the division of old-age numbers by those of working age (15-64); 12 countries have a ratio of over 4 to 10. Over the last few decades it has been having a major impact on several social services: Pensions, housing, health services and social structures are struggling to cope. In the case of pensions, the whole system is threatening to fail as it becomes impossibly expensive. In coming generations, our ideas of work, retirement, socialisation and education will have to change.
There are two answers: Prevent runaway population growth as is still the case in most countries (such growth delays the problem, but makes it worse in the end), and, spread out the young through open labour markets - immigration increases tax revenues to pay for services for the old, and, also provides the answer to the labour shortage that threatens aging countries - Japan's impressive automation robots are slow to develop and expensive. No doubt, the true economic solutions to such complicated problems have not yet been found.
The table on the right also includes LE (Life Expectancy).
Our massive population growth is unsustainable, but, thankfully the rate of increase is slowing and in some countries, populations are on the verge of shrinking if not already shrinking as in Japan. Due to the way freemarket economies work, this causes its own problems. The sooner we face these problems, the better, and, the more we let our populations rise beforehand, the worse the impacts will be. The trick is to manage national population growth in order to be able to manage the effects of the demographics crises better in the long-run.
“The EU is facing unprecedented demographic changes that will have a major impact on many areas of society such as social systems, consumption patterns, education, and job markets in the coming decades. People are living much longer and [...] fertility rates have dropped. [...] This demographic ageing means that the proportion of older people is rising in contrast to the share of those of working age (15 to 64). These demographic trends have serious economic and social consequences in a number of areas, including healthcare and benefit systems.”
Measured in percent, a rate of 25% means that there is one old-age dependent per 4 working-age people.
“Continued increases in longevity will ensure that the old-age dependency ratio, which measures the number of elderly people as a share of those of working age, will rise sharply in most countries over the next 40 years [...]. The biggest absolute increase will be in Japan, where the ratio [... is] already the world's highest, will more than double to 73.8%, by 2050. At that point, the number of pensioners in China will be equivalent to 38.8% of its labour force, up from 11.6% in 2010. The European Union, which had 84.6m elderly people last year, will have 148.4m in 2050. And the ratio for the world as a whole will reach 25.4%, up from 11.7% in 2010.”
“From an economic perspective, this mass ageing is already producing significant pressure and, going forward, many see it as a time bomb for healthcare, pensions, taxation and wider social dynamics. The key measure for this is the dependency ratio - the portion of population which is inactive in relation to the total labour force [and] is expressed as a percentage. [...] By 2050 [...] the likes of Spain, Italy, Japan and Korea, where the dependency ratios will have passed the 90% mark, there will be nearly one pensioner for every worker. [...] There will need to be significant [increases to tax rates] to cope with higher dependency.”
Economically, many companies and governments are feeling the increasing pressure of having larger numbers of pensioners. More and more people are drawing pensions, and fewer are contributing to pension pots. Economists have long predicted that in modern countries, pension schemes will collapse. It is not possible for one worker to pay for the pensions of one, let alone two, retired elders. Add the number of children to the mix and you arrive at the "dependency ratio", which is the measure of many dependents you have per working-age person.
Governments such as those in Britain8 and Germany9 have implemented a gradual increase of the age of retirement to try and curb the collapse of pension schemes and to try to dam the exodus of workers from employment to retirement. In 2006 the UK government produced a pensions bill designed to put off the pensions collapse:
“The state pension age will be increased to 68 and the link between earnings and pensions restored under a bill unveiled today. The pensions bill sets out plans for the state pension age to increase gradually to reach 68 by 2046. Ministers said the move is necessary to stave off a pensions crisis and secure the long-term financial stability of the pensions system, while ensuring fairness between generations.”
“Firms big and small are threatened by a fundamental demographic shift that most have yet to adjust to. Britain's pensioners are proving a hardier bunch than expected. On August 1st the actuaries' trade body adopted a new set of mortality tables drawing on data collected between 1999 and 2002. It forecasts yet another increase in life expectancy. In 1999 actuaries assumed that a British man retiring at 60 would on average live to the ripe old age of 84. They then raised their estimate in 2002 to 87. Now they figure he will live about six months longer. What is good news for ageing folk is bad news for those who support them. Each increase in life expectancy of one year adds about £12 billion to the aggregate pension liabilities of FTSE 100 companies, says Peter Thompkins of Pricewaterhouse-Coopers, an accounting firm. [...]
Firms as a group are underestimating life expectancy. [...] Updating that estimate could well add more than £25 billion to the FTSE 100 deficit [...]. So it is not surprising that many companies are trying to reduce the risks of providing pensions by closing their final-salary schemes to new members (which three-quarters of FTSE 100 firms have already done) and, increasingly, to existing members.”
Unfortunately measures such as increasing the age of pension are only temporary, because as the population continues to age, the changes will always be lagging behind what is required. The Economist newspaper in 2007 recommends that mandatory retirement ages need to be completely scrapped: "the best way to ease the transition towards a smaller population would be to encourage people to work for longer, and remove the barriers that prevent them from doing so. [...] Mandatory retirement ages need to go. They're bad not just for society, which has to pay the pensions of perfectly capable people who have been put out to grass, but also for companies, which would do better to use performance, rather than age, as a criterion for employing people"12.
The free movement of working-age migrants is a good way to lessen the effect to a manageable level. Scandinavia is suffering from the same problems, and Sweden has taken the region's most extreme pro-immigration steps in order to avoid a crippling labour shortage. Several UK industries rely on immigrant workers, who pay into pensions systems, and the British will need increasingly more immigrants in order to fuel the economy, as our population ages.
The UK depends, now, on immigrants to supply a workforce in multiple industries. "Over the past five years, nearly half the new doctors and nurses employed by Britain's National Health Service qualified abroad"13. This trend will continue and without increasing amounts of immigrants entire industries in the UK would collapse permanently. For now, new entrants into the European Union such as Poland offer healthy workforces to 'old' Europe. Europe's open borders allow the post-explosion countries to easily import workers. But, as the whole of Europe gradually enters the post-population-explosion era, more and more workers will have to come from Asia, South America and Africa. As yet, the increases are quite small and most immigrants come from within Europe, but in the future, Europe as a whole will be a hungry gobbler of young adults seeking work, from all over the developing world.”
“On the face of it, immigration seems like a good idea that benefits everyone. Many developing countries have lots of young people in need of jobs; many rich countries need workers to boost tax revenues and maintain economic growth. But, over the next few decades, labour forces in developed countries are set to shrink so much that inflows of immigrants would have to increase enormously to compensate - to at least twice their current size in Western Europe's most youthful countries, and three times in the older ones.”