Sunday, January 15, 2006

dependency ratio

Some social scientists and political figures have been concerned about the growing number and percentage of the population that is depending on people of working age for support. The idea is that one part of the population works, primarily those between 20 and 65, and supports the rest. If the proportions of the two groups get out of balance-that is, if there were too many dependent people in relation to the size of the working population-then it might become a burden on those who are still employed, and the prosperity of the entire population might suffer.
Recent discussions about the dependency ratio have actually focused more on the "old age dependency ratio" rather than the total proportion of people who depend on the working population. A number of scholars and demographers have noted with concern that the proportion of old people in the U.S. population is increasing. They point out that the percentage of those over age 65 who are retired and drawing Social Security, now at about 12 percent, will almost double over the next 35 to 40 years. In consequence, a comparatively smaller work force will be supporting a larger group of retirees.
There are, however, flaws in looking at the dependency ratio only in terms of the size and proportion of the older population. Those who depend on others for support consist in two major groups--children and young people in school as well as older retired people. A perspective on these two categories-the young as well as the old -- not only gives a more accurate picture of the size of the population that will require support in the future, but it shows that the dependency ratio is actually falling and will not reach its past high level even when the older population nearly doubles in size.
In 1970 young and old combined made up 43 percent of the population, but by the year 2000 this percentage will have fallen to 38 percent, a 5 percent fall since the peak. By 2030, at the height of the aging boom, the percentage, then 41 percent, will still not match the 1970 level. The reason for these changes is that the mass of the Baby Boom population, born between 1946 and 1964 and 75 million strong, will have moved from youthful dependence in 1970 to old age in 2030.
Some authorities express a sense of crisis even with these figures at hand. They point out, for instance, that in the year 2000 there will be 63.2 people in the dependent groups for every 100 persons whose work produces the school taxes and Social Security funds for nonworking people. In the year 2030, when the retired population will near its peak, there will be 73.8 dependent persons for every 100 workers.
These facts need not lead to a sense of crisis, however. The U.S. Congress has demonstrated its awareness of the growth of the older population by modifying the Social Security system to take into account the larger number of future retirees. One such change, the eligible age for full benefits, is closely geared to the major rise of the older population anticipated in the next century. It will go into effect in the year 2000, when the present age of eligibility for full benefits, now 65, will slowly increase to reach age 67 by 2027. Meanwhile the Social Security trust fund, now expanding at a rate of more than $40 billion per year, is expected to reach $12 trillion by 2030-an astronomical figure far beyond the three-month reserve that was on hand in the early 1980s when concern about the dependency ratio was at its height.
There are factors other than the growth of the Social Security trust fund that give reason for having confidence in America's ability to deal with the changing dependency ratio. The future solvency of the Social Security system, as well as of other pensions, depends on the will of the American public to put aside funds to assure its future financial security-and it appears that younger Americans are becoming increasingly aware of this need.
Some of those who express fears about the rising dependency ratio appear to imply that the older generation is not deserving of support. They disregard the past contributions of older people to the Social Security fund and to other pension savings that have helped to create the vast wealth the country has today. The high standard of living that Americans now enjoy and will continue to enjoy in the future rests on the introduction of numerous products-microchips, TVs, computers, microwaves, jet air travel, super highways and equally super cars, etc.-which were developed during the working lifetimes of both the people who are now reaching old age and the others who will achieve that status over the next 30 to 40 years. In fact, the very pension savings put aside by young and old become available for business investment and contribute to the growing of the wealth of the nation. By virtue of their contributions to the present high standard of living, members of the older generation fully deserve any support that future generations will provide for them. The costs of health care for the older population have also been of concern. While it is evident that these costs are high, it is also true that less than half of these are paid for by the public through the Medicare program- the elderly themselves pay the rest. Along with this is the fact that several European nations, including England, West Germany, the Scandinavian countries, France, and Italy already have higher proportions of older people in their populations than the United States. These range from 13 percent to 17 percent, while the U.S. now stands at about 12 percent. Six of these nations have proportions that exceed 14 percent and they are all managing quite successfully. When these factors are taken into consideration
they show that fears of a rising specter of an older population are unwarranted -- the old have earned their keep and will continue to do so. America met the challenge of providing education on a massive scale for the Baby Boom population, and it will again meet the challenge of providing for future generations of the elderly. These same elderly, which will shortly include the Baby Boomers, have created the wealth that made the nation prosperous. Like the generations before them, they should legitimately share in consuming the wealth of the nation when they have finished their working days. With intelligent social planning there is no reason to expect that the age wave will swell the dependency ratio to a point where it will swamp the nation when it crests in the next century. 70 dependent care credit
Russell, C. H., and Megaard, 1. The General Social Survey, 1972-1976: The State of the American People. New York: Springer-Verlag, 1988.
Soldo, B. J. "America's Elderly in the 1980s," Population Bulletin, Vol. 35, No.4. Washington, D.C.: Population Reference Bureau, Inc., 1980.

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