DEPENDENCY RATIO

The dependency ratio is an age-population ratio of those typically not in the labour force (the dependent part ages 0 to 14 and 65+) and those typically in the labor force (the productive part ages 15 to 64). It is used to measure the pressure on productive population and is shown as a percentage %.

How are total, child and old-age dependency ratios similar and different?

SWITZERLAND

Population: 8,236,303 (2017)

0-14 years: 1,248,503
15-64 years: 5,493,092
65 years and over: 1,494,708

1. Calculate the total age dependency ratios for Switzerland and Russia.

2. Calculate the child dependency ratios for Switzerland and Russia.

3. Calculate the old-age dependency ratio for Switzerland and Russia.

EFFECTS OF A HIGH OLD-AGE DEPENDENCY RATIO

Explain four impacts of a high dependency ratio.

1. Lower Tax Revenues - retired people pay lower income tax. Therefore, the working age population has a greater responsibility to pay tax.

2. Higher Government Spending - the government is committed to paying a state pension and related benefits such as a minimum income guarantee. There are also greater demands for indirect spending on retired people. People over 65 are more likely to require treatment by the NHS. Therefore, there are greater demands placed on government spending by a rise in the dependency ratio.

3. Higher tax rates - because of reduced government finances, the working population pay more taxes. This could lead to people working less and reducing disposable income (savings). The government may be forced to collect more revenue from indirect taxes or wealth taxes.

4. Lower pension funds - because of the rising percentage of retired people, pension funds are having to stretch further than before. Many pension funds haven’t planned for the rapid rise in the dependency ratio. Combined with the credit crisis and low interest rates, the average income retired people can expect has fallen.

5. Pressure to raise retirement age - because of the increased cost of pensions there is pressure to raise the retirement age in both the private sector and public sector. Tesco’s recently announced it will be the first private firm in the UK to raise its pension age to 67. This is an attempt to reign in the costs and meet the pension shortfall they currently have.

6. Inequality - raising the state pension age will have different effects. Some people with a substantial private pension will not really be affected. They can still choose to retire when they want. However, others with no or minimal state pension will have to work longer.

CASE STUDY: JAPAN'S AGEING, DEPENDENT POPULATION

What challenges will Japan face as its population ages?

EXAM PRACTICE

With reference to named examples, examine the consequences (benefits and challenges) of an ageing population [7 marks]

The best answers will:

• include frequent reference to facts, data and examples

• compare both the benefits and challenges

• come to a clear conclusion