Dependency Ratio

Published Apr 11, 2023

Definition of Dependency Ratio

The dependency ratio is a measure of the number of dependents (i.e., non-working, aged 0-14 and 65+) relative to the number of working-age individuals. It is expressed as a percentage, and it helps to gauge the degree to which a society’s working-age population supports those who are too young or too old to work.

It can be calculated as the [number of dependents] / [number of people aged 15-64] * 100

Example

Let’s say, for instance, that a country has a total population of 50 million people: 30 million of them are aged 0-14 years, 100 million are aged 15-65 years, and 20 million are aged 65 years and above. That means that the dependency ratio is calculated as (30M+20M) / (100M) = 0.5. This means that for every two working-age people, there is one dependent.

This has significant implications for the country’s economy since a large dependency ratio means that the working-age population has to provide support for a larger number of non-working individuals. This can put pressure on the economy and could lead to a decrease in living standards.

In contrast, a smaller dependency ratio reflects a smaller burden on the working-age population and thus can lead to higher incomes, greater savings, and increased investments in the economy.

Why Dependency Ratio Matters

Dependency ratios are crucial for policymakers, as they help to identify the size and structure of a society’s dependent population. High dependency ratios imply a greater burden on the working-age population and, consequently, may lead to higher taxes, lower economic growth, and reduced public services.

Therefore, it is essential to monitor dependency ratios and adjust policies accordingly to ensure that societies’ working-age population can support the dependents while maintaining economic growth and stability.