Thursday, September 16, 2010

Does the dependency ratio mean all that much now?

The old age dependency ratio--the proportion of people over 65 to people of working age (15 to 64 years of age) is the standard metric for measuring a population's aging, and by extension, the degree to which an aging country's economy will have to somehow cope with the rapid growth of pension expenditures, the contraction of the workforce, et cetera. Now, a new study out of Vienna's IIASA makes an argument that with improving health for older people, the dependency ratio doesn't make that much sense.

Those measures are based on fixed chronological ages, and this can generate misleading results,” says Dr. Warren Sanderson, from IIASA and SBU. “When using indicators that assume fixed chronological ages, it’s assumed that there will be no progress in factors such as remaining life expectancies and in disability rates. But many age-specific characteristics have not remained fixed and are not expected to remain constant in the future.”

However, many people over 65 are not in need of the care of others, and, on the contrary, may be caregivers themselves. The authors provide a new dependency measure based on disabilities that reflect the relationship between those who need care and those who are capable of providing care, it is called the adult disability dependency ratio (ADDR). The paper shows that when aging is measured based on the ratio of those who need care to those who can give care, the speed of aging is reduced by four-fifths compared to the conventional old-age dependency ratio.

Dependency ratios. Authors’ calculation. OADR and POADR are based on UN, World Population Prospects: The 2008 revision (WPP). ADDR are based on both UN WPP and European Health Expectancy Monitoring Unit Survey Data (see references in article). The lower age boundary in all denominations is 20.

Co-author Dr.Sergei Scherbov, from IIASA and the VID, states that “if we apply new measures of aging that take into account increasing life-spans and declining disability rates, then many populations are aging slower compared to what is predicted using conventional measures based purely on chronological age.”

The new work looks at “disability-free life expectancies,” which describe how many years of life are spent in good health. It also explores the traditional measure of old age dependency, and another measure that looks specifically at the ratio of disabilities in adults over the age of 20 in a population. Their calculations show that in the United Kingdom, for example, while the old age dependency ratio is increasing, the disability ratio is remaining constant. What that means, according to the authors, is that, “although the British population is getting older, it is also likely to be getting healthier, and these two effects offset one another.”

The new ratio that Sanderson and Scherbov introduce, of the ratio of disabilities in adults over the age of 20 in a population, does seem to make more sense in certain contexts notwithstanding a degree of subjectivity (what will different statistical agencies define as "disabilities"). The press release quotes the authors as suggesting that, if population aging is much less catastrophic a phenomenon that previously presented--this AFP article reports the authors suggest that "[w]hen aging is measured based on a ratio of those who need care to those who can deliver care, the speed of aging is reduced by four-fifths compared to the conventional old-age dependency ratio"--gradualist reforms of pension and retirement aging, potentially more manageable than sharp hikes, could become possible. Certainly if this ratio did become the new metric social and economic systems would urgently need revision to match.


Scott said...

Very interesting research, and the thesis that fewer people will be physically dependent on others as they age intuitively feels on the mark.
However, of course in countries with pension systems in place, the expectations of the public are that they will be able to stop working and live off the pensions that have been promised. In this sense, the standard dependency ratio is still highly relevant.

Beige said...

One might also reflect on the dependency ratio not reflecting the (currently quite many) 'working-age' people who nonetheless are unemployed. On the one hand we suggest there aren't enough workers, on the other, we tell people who want to work that they're just out of luck, there's no work for them.