What is the Dependency Ratio
The dependency ratio is a measure showing the ratio of the number of dependents aged zero to 14 and over the age of 65 to the total population aged 15 to 64. This indicator gives insight into the amount of people of nonworking age compared to the number of those of working age. The ratio can be calculated as:
Dependency Ratio = (Number of dependents / Population aged 15 to 64) x 100%
It is also referred to as the total dependency ratio.
BREAKING DOWN Dependency Ratio
A high dependency ratio means those of working age, and the overall economy, face a greater burden in supporting the aging population. The youth dependency ratio includes those only under 15, and the elderly dependency ratio focuses on those over 64. For example, if in a population of 1,000, there are 250 people under the age of 15 and 500 people between the ages of 15 and 64, the youth dependency ratio is 50%, or 250/500.
The dependency ratio focuses on separating those of working age, deemed between the ages of 15 and 64 years of age, from those of nonworking age. This also provides an accounting of those who have the potential to earn their own income and who are most likely to not earn their own income. Various employment regulations make it unlikely that individuals less than 15 years old would get employed for any personal income. A person who turn 64 years old is generally considered to be of normal retirement age and is not necessarily expected to be part of the workforce. It is the lack of income potential that generally qualifies those under 15 and over 64 as dependents as it is often necessary for them to receive outside support to meet their needs.
Analysis of Dependency Ratios
Dependency ratios are generally reviewed to compare the percentage of the total population, classified as working age, that will support the rest of the nonworking age population. This provides an overview for economists to track shifts in the population. As the percentage of nonworking citizens rises, those who are working are likely subject to increased taxes to compensate for the larger dependent population.
Shortcomings of the Dependency Ratio
The dependency ratio only considers age when determining whether a person is economically active. Other factors may determine if a person is economically active aside from age including status as a student, illness or disability, stay-at-home parents, early retirement, and the long-term unemployed. Additionally, some people choose to continue working beyond age 64.
Weighted Dependency Ratios
At times, the dependency ratio is adjusted to reflect more accurate dependency. This is due to the fact those over 64 often require more government assistance than dependents under the age of 15. As the overall age of the population rises, the ratio can be shifted to reflect the increased needs associated with an aging population.