In this lesson, you will explore the dependency ratio and discover what it calculates, why we need it, and how to use it. Then, you can test your understanding with a brief quiz.
Okay, here’s a question for you: what do we do with old people? Yes, I know that sounds insensitive.
But seriously, think about it. How do different societies handle their elderly? In some cultures, it is expected that children will provide for their parents later in life. In others, it’s assumed that the government will provide for their needs.
It’s actually an important question since there comes a point when most people generally cannot provide for themselves.Now, in our modern world, this question really means one thing: we need a formula. Something to statistically tell us just how much of our population is going to need taken care of. Luckily for us, we have the dependency ratio, a formula that calculates the percentage of people in a society who will likely require care. In other words, dependents.
Calculating the Dependency Ratio
The dependency ratio is meant to figure out roughly how many people in a society are going to need care for, so we are dealing with people who are assumed to be unable to earn a substantial living for themselves. And since the statistical model has to be consistent, this means picking an age. Actually, two. Dependents, according to this formula, are people who are either younger than 15 or older than 64.
With that, calculating the formula really is pretty simple.You take the latest demographics, maybe from the national census, and figure out how many people qualify as dependents. You then divide that number by the total population. Think of it like calculating a grade, the points earned out of the total points possible. Instead, we’re just dividing the number of dependents by the total possible number of people. Then, multiple by 100 for the percentage.
Significance and Interpretations
So, now that we have this formula, what does it actually mean? Well, the ratio gives you an idea of how many people in your society likely cannot completely care for themselves, financially at least.
But, these people still need to eat, have places to live, etc, and that means somebody has to pay for them. For kids, maybe parents. For the elderly, perhaps their own children or a private facility, like a retirement center.But, what about those who don’t have someone or can’t afford private care? In our world, the rights to a happy and healthy life are assumed to belong to all people, so this means that governments have a moral obligation to care for citizens who can in no other way completely care for themselves.
That’s one important significance of the ratio, predicting the amount of resources a government will need to provide for its population.However, there are other implications as well. Say you have a very low ratio, but a high population. That means that right now you have a lot of people working, but in a few years those people are all going to need care at the same time. That means those same people won’t be working and, therefore, won’t be paying taxes.
Taxes are what pay for most social welfare programs. So, not only does the ratio indicate the resources you need right now, it also predicts the amount of saving you need to do in order to prepare for the future.For as useful as this is, there are some issues with the dependency ratio. For one, it assumes that people stop working when they’re 65. However, as of 2014, the average age of retirement was 62, according to the Gallup poll.
The lower number is likely a result of people being pushed into early retirement by companies that need to cut their budgets. So, that’s a large number of people the ratio did not anticipate.The other issue is immigration. Nations, like the United States, which advertise as being a nice place to live, tend to attract immigrants. Many of these immigrants are well within the age limit to work. However, many also bring families, meaning children or elderly parents. Now, we’re happy to have immigrants in this country, don’t get me wrong, but the ratio does not predict how many dependents could possibly enter America at any given time.
Say, by some chance, next year 10,000 elderly people from the Ukraine and 5,000 children from Canada suddenly decide to call the U.S. home. If they become citizens, or even if they don’t, there is still a moral obligation to ensure their quality of life. So the formula isn’t perfect, but for now, it’s what we’re going with.
The dependency ratio is a statistical formula to predict the number of people in a society who will require care.
This formula is based on the assumption that people younger than 15 or older than 64 will not work and, therefore, will not have enough money to provide for themselves. With this assumption, the ratio is fairly easy to calculate by dividing the number of dependents over the total population. While the assumption about working ages may not be perfect, it does help to predict the amount of resources that will be needed to complete the moral duty of a government to provide a certain quality of life for the people it governs.