The Age Dependency Ratio – A Brief Demographic Overview of the World

2008 was as significant a year from a demographic perspective as it was from a financial one. In 2008 the world’s age dependency ratio —  the number of people who are either younger than 15 or older than 65, relative to the number of people aged 15-65 — reached its lowest ever point. From a peak of approximately 0.77-to-1 in 1967, the world’s age dependency ratio fell to a floor of 0.54-to-1 in 2008, a level it has remained at every year in the decade since. (Or, to put it another way, which might be more intuitive, the percentage of the world’s population that is 15-65 years old reached its highest point in 2008 – 65 percent – and remains there today). This record low is not likely to be broken any time soon. The United Nations predicts that the dependency ratio will rise again during the decades ahead, albeit gradually, as more Baby Boomers reach 65 years old and as birth rates continue to fall worldwide.

The age dependency ratio is a useful, though obviously imperfect, measure of economic potential. The higher a country’s dependency ratio, the heavier the economic burden (to put it crudely) its working-age population may need to bear. The country with the highest dependency ratio in the world, Niger, with a ratio of 1.12, has 1.12 children or seniors (mostly children) for every 15-65-year-old adult. The country with the lowest dependency ratio, South Korea, with a ratio of 0.38, has nearly three adults for every one child or senior citizen. The Gulf Arab monarchies have even lower ratios than that (the United Arab Emirates’ is just 0.18), but only because they have so many temporary foreign workers (mostly men) living within their borders.

It is not surprising that a lower dependency ratio has tended to correlate with economic success. Not only is a country with fewer dependents more able to invest its time and money into increasing its productivity, but productive countries also tend to have low birth rates, which help keep dependency levels low in the short-term (though not, of course, in the long term; fewer kids eventually means fewer adults, absent immigration). As such, a low dependency ratio can be both a cause and an effect of economic growth. Even the oldest country in the world, Japan, only has a dependency ratio of 0.66, much lower than the dependency ratios of the young countries in Sub-Saharan Africa.

In recent history, the correlation between economic growth and age dependency can be seen most clearly in East Asia. China’s rapid economic growth has tracked its dependency ratio’s steep fall, while Japan’s stalled economic growth has tracked its own dependency ratio’s rise. China’s dependency ratio, which is today the lowest in the world apart from South Korea (not counting city-states or the Gulf Arab monarchies), was almost twice as high a generation ago, and only fell below the US’s around 1990.

That same year, Japan’s age dependency ratio fell below that of a newly reunified Germany to become the lowest in the world, apart from Singapore or Hong Kong. An aging population has since made Japan’s dependency ratio become by far the highest in the developed world, however. Japan’s ratio has also risen higher than those of many developing nations in recent years, even than some of the world’s poorest nations outside of Sub-Saharan Africa, such as Haiti:

Outside Japan, East Asia now has the lowest dependency ratios of any region, by far. Not only China and South Korea but also Thailand, Taiwan, Singapore, Hong Kong, Vietnam, Malaysia, and even North Korea all have ratios between 0.38-0.44, the lowest in the world anywhere outside of the Persian Gulf. Indonesia’s dependency ratio too, at 0.48, is now lower than those of most countries in the world. And the Philippines, the major outlier in the region with a dependency ratio of 0.57, no longer has a high ratio by global standards either.

This trend, however, is finally beginning to change. China’s ratio has begun to rise since 2010, prompting many to worry that the country “will become old before it becomes rich”. (China’s aging may actually be taking place much more rapidly than its official statistics have suggested). The dependency ratios of Vietnam, Thailand, and South Korea have also begun rising during the past several years. And Japan’s already high dependency ratio will keep rising quickly unless it is able to continue to increase its very low immigration rate.

The years 2008-2010, in addition to being when the global dependency ratio and the Chinese dependency ratio both reached their lowest levels, was also when the European Union’s dependency ratio rose higher than that of the US, for the first time since 1984. The EU’s dependency burden has continued to rise relative to the US in the decade since, a fact that has perhaps contributed, at least to a minor extent, to the US’s stronger economic performance during this period.

Indeed, at the risk of attributing far more significance to the age dependency ratio than is justified, I will also point out the fact that countries in Central Europe have of late enjoyed a much lower ratio and a much stronger economic performance than has the EU as a whole. Similarly, Canada has had the lowest dependency ratio and one of the strongest economies among rich Western nations during the past two decades, especially in the years before oil prices fell in 2015. Dependency burdens in Canada and Central Europe were particularly low during the financial crisis, relative to those of the United States or the European Union as a whole:

Another intriguing case is Italy, which has a ratio that has been rising at a fast pace since 2010, at the same time as its economy has become perhaps the primary point of concern in European politics. A similar trend has existed throughout Southern Europe, with the ratios of Greece, Spain, and France reaching high levels in the years after 2010. Although it is actually France which has the highest dependency ratio of these countries, a result of its having a relatively large number of children compared to other European countries, it is Italy which has their highest old age dependency ratio (population older than 65, relative to population 15-65):

If we look at Europe as a whole, including countries in its surrounding region, we can see there is a divergence occurring between northern and southern countries. Northern countries such as Germany, Russia, and Poland*, which have had some of the lowest dependency burdens in the world in recent decades, may see sharp increases in the years ahead because their largest population cohorts are approaching 65 years old and they have few teenagers approaching 15 years old. (An exception to this is Ireland, where the largest age cohort is 35-40 years old. Irish birth rates were relatively high until the 1990s).

Mediterranean countries, in contrast, may have their dependency ratios rise more slowly, either because they have more children or because (particularly in Spain) their largest age cohorts are now only in their forties rather than their fifties. Within the EU this is especially true of France, which has had high birth rates by European standards. It is, however, even more true of non-EU Mediterranean countries, such as Turkey or the Arab states of North Africa. These countries used to have far higher ratios than the EU or Russia, but no longer do today:

This fall in dependency in places like Turkey and North Africa is part of a greater trend, in which countries in the “global south”, particularly those outside of Sub-Saharan Africa, have recently seen their ratios fall much more quickly than countries in Europe, North America, or Northeast Asia. India’s dependency ratio, for example, fell below both the US’s and Germany’s in 2016. So did Bangladesh’s. (Pakistan’s ratio is falling too, but still remains high, around the level of Japan’s). Latin America’s is even lower; it recently became the lowest of any major region other than East Asia.

The big country that has had the most significant fall in dependency, however, is Iran:

Of course, age dependency ratios are simplistic. They treat all people above the age of 65 and below the age of 15 as if they were the same, and all people between 15 and 65 years old as if they were the same. Yet if (for example) we were to change the upper limit of working age from 65 to 75, Japan’s dependency ratio would fall substantially as a result, because Japan’s largest age cohort today is 65-75 years old. (Many of these Japanese senior citizens are still in the workforce). If, on the other hand, we were to change the lower limit of working age from 15 to 25, many lower-income countries’ ratios would rise substantially.

A primary lesson that can be learned from the analysis of age dependency ratios is that the common “young population good, old population bad” view of countries’ economic prospects is a misleading one. In reality countries with young populations tend to remain poor, in part because the youngest countries in the world (in Sub-Saharan Africa) are much younger than the oldest countries in the world are old. It will probably still be a number of decades before aging populations lead Europe or North America to have a higher age dependency ratio than Sub-Saharan Africa. And even that assumes that no unexpected shifts in migration or fertility will occur.

What age dependency ratios do show is two big trends, both of which have to do with middle-income economies. The first trend is the emergence of what we might call a goldilocks belt, located between the aging populations of North America, Europe, and Northeast Asia on the one hand and the youthful populations of Sub-Saharan Africa on the other. Most of the countries in South Asia, North Africa, and Latin America appear to be in the process of supplanting high-income countries in terms of having the demographic trends that might be most conducive to (or at least, indicative of) economic growth.

The second trend is that Northeast Asia’s dependency ratio, which has been the lowest in the world for a generation and probably played a significant role in helping the region emerge from a low-income to middle-income level, bottomed out almost a decade ago and will soon be rising quickly. South Korea in particular is expected to have the biggest increase in its dependency burden of any major economy during the years and decades ahead, unless it experiences an inrush of adults from abroad (from North Korea, perhaps). China may not be far behind either. And Japan, where today the two biggest age cohorts are between 65-75 years old and 45-55 years old, might become, 10-15 years from now, the first wealthy country to have a higher dependency ratio than Sub-Saharan Africa.

Notes:

_{*The war in Ukraine may further impact these numbers, as working-age populations in the region migrate or suffer injuries and deaths. In certain countries, such as Poland, the war has however led to an increase in the working-age population, as Ukrainians have moved in. There has also lately been an increase in the number of working-age Poles returning home from Britain. (If Eastern Europeans in Britain were to return to their home countries in large numbers, it could impact the dependency ratios of several economies, in particular that of Lithuania).}