Wishful dependency thinking

04/11/2011 § Leave a comment

Numbers, man. Sometimes you just gotta run the numbers.

I was reading the Ministry of Social Development’s Business of Aging (Jan 2011) report, and found this:

Traditional economic analysis describes a “dependency ratio” comparing the number of people aged 15–64 (described as working age) to those outside this age group. This concept assumes people over the age of 65 are no longer economically active, and are dependent on the earnings of younger people. A projected increase in the population aged over 65 relative to those aged 15–64 (see Table 1 below) may not equate to increased dependence.

Okay, this is a maths problem. What happens to ‘dependence’ as the population ages, taking into account increased labour force participation? The report forecasts that the employed percentage of people 65+ will peak at 23% in 2028 (from 12% now). Stats NZ helps out with the population projections (Series 5):

2009 2031
0-14 yrs 21% 18%
15-64 yrs 66% 61%
65+ yrs 13% 21%
Ratio 34:66 39:61
51.5 63.9

To assess this theory, let’s posit an adjusted dependency ratio. We’ll subtract the new 65+ employees from the numerator and add them to the denominator.

[21 - (23-12)*21] + 18 = 39 – 2.3 = 36.7

61 + 2.3 = 63.3

Ratio is 36.7 : 63.3, or 58.0

Nope, we still have ‘increased dependence’. So, yes, there is increased participation. But it’s a fraction of a fraction, so it winds up being a couple of percentage points of extra workers. We would need about 35% of 65+ people to work in order to avoid increased dependence.

In theory aging ‘may not equate to increased dependence’, but their own numbers say it will.

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