The number of people over age 65 is expected to sharply increase during the next decade, and it is time for new measures of population aging.
Are We Overly Dependent on Conventional Dependency Ratios?, a study published in the December 2015 Population and Development Review, unveils such measures. Researchers Warren Sanderson, a professor in the Department of Economics at Stony Brook University, and Sergei Scherbov, a project leader at an Austrian research institute, suggest that conventional measures of aging — the old age dependency ratio — are biased and misleading. Instead, they claim that aging is a multidimensional phenomenon and many other characteristics should be considered beyond chronological age.
The old age dependency ratio defines people as becoming old age dependents when they reach age 65. The ratio is the number of old age dependents to the number of people age 20 to 64 (the group that supports and cares for the dependents). It is used as a “one size fits all” measure of population aging to demonstrate potential shortfalls in the number of people around to support those 65 and older.
Sanderson and Scherbov present four different measurements — economic dependency ratio, healthcare cost dependency ratio, pension dependency ratio and prospective dependency ratio — that offer a more dynamic and effective determination of aging. They are based on a new concept of age, which takes into account the expected number of years people have left to live. Sanderson and Scherbov call the new measures “prospective” because they are based on a forward-looking concept of age. See more here.
“The 21st century will be known as the era of aging,” said Sanderson. “We should start discussing it using 21st century tools, not using the antiquated old age dependency ratio, but rather those that fully account for the expected number of years people have left to live. Aging is not one static number; it is a multidimensional phenomena.”
Additionally, Sanderson and Scherbov suggest that the old age dependency ratio can present issues with healthcare and pension costs, as well as shortages in the number of future workers. Conventional measures of aging do not take into account that most healthcare costs come in the last few years of life, not at 65. The resulting estimates could lead to unnecessary changes in the way healthcare is delivered and make changes that are not required.
He and Scherbov explain the four new tools.
Economic Dependency Ratio
This ratio doesn’t assume that everyone at the age of 65 retires. It also doesn’t assume that anyone younger than 65 is working. It determines that people are working past 65 years old; therefore, changing their economic status. The old age ratio assumes everyone at 65 retires.
Healthcare Cost Dependency Ratio
This ratio determines that healthcare costs skyrocket during the last few years of life. The old age dependency ratio suggests that healthcare increases at 65 because that’s the assumed retirement age.
Pension Dependency Ratio
The assumption is that people get public pensions at 65; however, this is not the case. In most wealthy countries, normal public pensions are rising. A number of countries, such as Sweden, Norway and Italy, have pension payouts linked to life expectancy.
Prospective Dependency Ratio
This suggests that we should be looking at how many birthdays the person will have, rather than how many the person has had. People are assumed to become old age dependent at 65, but that is not the case as life expectancy is rising.