Dependency Ratio: How to Calculate the Dependency Ratio

The dependency ratio, or age dependency ratio, compares the proportion of a total population outside of the workforce to those in the workforce. The working-age part of the population is defined as those aged 15 to 64, while the dependents are either older or younger than that range. Placing these two numbers next to each other gives economists the dependency ratio.

When calculating the dependency ratio, economists evaluate the working-age population and age groups unable to work. There are three variations of the dependency ratio:

1. 1. Dependency ratio: To calculate the total dependency ratio, economists divide the number of dependents by the number of people working, then multiply by 100 to get a percentage.
2. 2. Child dependency ratio: The child dependency ratio, or youth dependency ratio, is more specific than the overall dependency ratio. In this case, only those below working age are included in the numerator. Economists divide that number by the working population in the denominator, then multiply by 100.
3. 3. Aged dependency ratio: This ratio, also known as the old-age dependency ratio, evaluates those older than 64. Economists divide that number by the working-age population, then multiply by 100 to get a result.

The dependency ratio is a fundamental data unit for economists to analyze how demographic changes affect economies. Working-age people contribute most of the paid work in an economy and pay most taxes. Meanwhile, the young and the aged tend to account for most social spending in areas like healthcare and education.

In societies with high dependency ratios (usually defined as over sixty-five percent), there is concern that the working population will be unduly burdened or the old and very young will be deprived. Conversely, societies with lower dependency ratios are generally regarded as better off. They have a high number of workers to fuel economic growth and support the dependent population, both through direct care and through paying into programs like social security.

The dependency ratio for a given society changes as people enter and leave the labor force, migration occurs, and demographics evolve. Below are some of the most critical factors:

1. 1. Fertility rate: Societies with a high fertility rate will generally experience a decrease in the dependency ratio. Initially, this will create a higher child dependency ratio, but eventually, these people will enter the workforce, thus lowering the overall dependency ratio.
2. 2. Life expectancy: As people live longer, the number of aged dependents will climb, producing a higher overall dependency ratio.
3. 3. Education: There is a long-established trend of higher education levels leading to lower fertility rates. As more women achieve higher levels of education, they spend more time in the workforce and have fewer children. This can lead to a higher dependency ratio as population growth slows.
4. 4. Health: A country’s overall level of healthcare can significantly impact the dependency ratio. Better health means lower child and maternal mortality and healthier seniors, shifting the dependency ratio higher or lower, as the specifics dictate.
5. 5. Migration: As a country’s working-age population gets older, younger workers immigrating to that country can partially supplement the workforce. An influx of younger workers is one of the fastest ways to decrease the dependency ratio.

The dependency ratio is a common metric widely used, but there is a rising level of criticism toward how the ratio can distort reality and produce bias in economics:

1. 1. Ageism: Some critics contend that the framing of the dependency ratio casts elderly people in a negative light, in part by assuming they are unproductive and less socially necessary.
2. 2. Workforce changes: The dependency ratio does not reflect how working trends change within societies. For instance, there is a trend in many wealthier countries of older people working for longer, as the retirement age climbs and pensions become smaller and less common.
3. 3. Unemployment: Focusing on a society’s age structure does not consider that there is always a portion of the working-age population that is unemployed. For this reason, some economists include unemployed people and the labor force participation, which measures how many people are working, in the calculation.
4. 4. Productivity changes: Perhaps the most overlooked feature not adjusted for when using the dependency ratio is the fact that rising productivity and rising wages can affect the way that a society can distribute its resources. Even if the older population is growing, rising wages and more leisure time for the young can help make up for any shortfalls in the resources required for taking care of those who need it.

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