Friday, March 6, 2015

US Dependency Ratios, Looking Ahead

In the lingo of demographers and economists, the "dependency ratio" refers to the fact that the working age population from ages 18-64 produces most of the output in any economy, but a certain amount of the consumption is done by those under 18 and those over 65. Thus, there is an "old-age dependency ratio," which is the population 65 and older divided by the population from 18-64, a "youth dependency ratio" which is the under-18 population 17 divided by the population from 18-64, and at "total dependency" ratio which is the sum of the under-18 and 65-and-over population, divided by the 18-64 population.

Sandra L. Colby and Jennifer M. Ortman from the US Census Bureau offer some projections about dependency ratios in the March 2015 report "Projections of the Size and Composition of the U.S. Population: 2014 to 2060" (P25-1143).

As the figure shows, the youth dependency ratio is expected to hover around 35%--in fact, to decline a bit--in the decades to come. However, the old-age dependency ratio is on the rise. It's now about 23%, but 2035 will be up to about 38%. Taking the two ratios together, the under-18 population plus the 65-and-over population is now about 60% of the size of the 18-64 population, but the ratio is headed for about 75% in the next two decades.

It's worth emphasizing that the old-age dependency ratio for a couple of decades in the figure can be estimated with a pretty high degree of accuracy. After all, anyone who is going to  be 21 or older in 2035 has already been born. Large fluctuations in death rates or immigration rates are the only factors that can move the old-age dependency ratio substantially.

The report also includes a breakdown of the growth of population by age that helps to clarify what is happening behind these ratios. By 2040, the under-18 population is projected to rise by a total of 5%; the 18-44 population by 12%; the 45-64 population by 10%; and the 65 and older population by 78%.
Most of the rise in the old-age dependency ratio happens by the early 2030s. Thus, one can think about the next two decades as a time of transition: transition in public policies affecting the elderly like Social Security and Medicare; transition in work patterns as we seek to encourage at least some of the elderly to stay in the workforce longer; transition is how we think about the design of public services and facilities everywhere from hotel rooms to park trails for a population with a larger share of the elderly; and transition in how we start building systems that can support families and communities in providing assistance and care for the elderly who need it.