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Dependency Ratios

Updated: March 30, 2022

The demographics of countries across the world differ significantly, but the age profile is particularly important which can be measured through dependency ratios. Dependency ratios are economically important metrics since they approximate the relative importance of the non-working age population (old and young people) as a proportion of the total working age population. These ratios have implications for the level and direction of public expenditure particularly on health care and education and open the solvency of pension institutions. Ultimately the dependency ratios will impact on the size of the labour force and upon potential economic growth in GDP. An NBER study by Bloom and Canning in 2004 presented convincing evidence that studies of international economic growth rates which are based on unchanging assumptions about demographic ratios were “seriously misleading.”

The World Bank database has population data for two dependency ratios – older dependents and younger dependents for most countries from 1960 to 2020. These data are analysed below for 2020.

Young Dependency Ratio

The young dependency age ratio measures the ratio of younger dependents--people younger than 15--to the working-age population--those ages 15-64. Data are available as the proportion of dependents per 100 working-age population for 146 of the countries included in the World Economics data and population quality database.

The proportion of young dependents across the world varies from a high of 104.1% in Niger to a low of 16.1% in Qatar with a median value of 38%. Countries with a high proportion of younger dependents that are growing rapidly in terms of GDP will not find a young dependency ratio above the median value as problematic providing there are sufficient resources available to devote to education and employment opportunities are expanding. Most of the countries with above average youth dependency ratios are in sub-Saharan Africa which puts pressure on resources. For example, Nigeria with a very high youth dependency ratio of 80.9% has a youth unemployment rate of 19%. In contrast, Vietnam has a youth dependency ratio of 33.6% but a youth unemployment among the age range 16-24 years of only 7%.

The dynamics of the youth dependency ratio over time is important. China, for example, benefited from a fall in the dependency ratio as a result of the one-child policy which reduced the resources devoted to child care while a larger proportion of the population was entering the labour force. The ratio is now 25.2% combined with a youth unemployment rate of 11% while in India, which has yet to fully reap the demographic dividend which helped push China’s growth, the youth dependency ratio is 38.9%.

Old Age Dependency Ratio

While it appears there is could be an optimal youth dependency ratio, the facts of demography work in reverse. An economy which benefits from a bulge of working age population while the youth dependency ratio is falling, will find growth harder to achieve when that population retires. A higher proportion of older retired persons to the working population places strains on health care expenditure and raises pension liabilities.

The old age dependency ratio is the ratio of older dependents--people older than 64--to the working-age population—or those aged between 15-64 years. The available are the proportion of dependents per 100 working-age population for 152 of the countries included in the World Economics data and population quality database.

The proportion of older dependents across the world varies from a high of 48% in Japan to a low of 1.5% in the United Arab Emirates with a median value of 10%. A high age dependency ratio has a depressing impact on growth and while this is well-documented in the case of Japan the problem is most prevalent among OECD nations with the exception of countries such as Chile with a ratio of 17.9% and Mexico with 11.1%.Apart from Japan, the next twenty countries ranked by largest age dependency ratio are all in Europe ranging from Finland with a ratio of 36.6% to Cyprus with a ratio of 20.9% and an average ratio of 32%.