The old-age dependency ratio (OADR)

Economic doomsayers have predicted that the ageing populations of industrial and post-industrial countries will be bad for the economy because fewer people will work and contribute to economic growth. More people will collect pensions and demand health care.

  • The United Nations estimates that the share of the populations aged 60 and older will increase between now and 2050.
  • The number of people aged 60 and over are double in the developing countries to that of the developed worlds.
  • Countries with increased life expectancy and declining birth rates are raising the average age of the population.

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The myth of an "ageing society"

weforum.org

If one assumes that old people are unproductive consumers of government benefits, then a rising OADR can be problematic. But, policymakers only focus on chronological age, while the sociological components of ageing have shifted over time.

Two factors drive average mortality rates:

  1. As countries industrialize, they have lower birth rates. Older cohorts of the population will increase in size, and the average overall mortality will rise.
  2. However, people are younger for longer, offsetting the ageing effect.

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  • The ageing effect centres on the negatives associated with the demographic doomsayers narrative.
  • The longevity effect means if people are leading longer, productive lives, they can make a bigger contribution than the generations before them.

Countries that have grown the fastest experienced more sudden demographic transitions and may suffer from a bigger ageing effect that will need to be offset by increased longevity.

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The standard chronological measure of age makes less sense because the biological age has changed in relation to chronological age.

In the US, a 75-year-old today has the same mortality rate as a 65-year-old in 1952. In Japan, 80 is the new 65. This brings a very different perspective on what is happening to OADRs in advanced economies.

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From the perspective of mortality-adjustments, one can see a flawed assumption underlying the conventional demographic doomsayers who don't distinguish between ageing and longevity effects.

A more nuanced approach is needed that reflects the multidimensional aspects of ageing. The average person now lives a longer, healthier life based on income, education, genetics, lifestyle, and environment. There is a growing need for more flexible policies to help older workers live more productive lives.

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Advances in anti-ageing technology could increase people's lifespan to 150. This technology could be beneficial for countries suffering from the ageing effect.

In countries where the longevity effect is dominant, there will be vast economic and social opportunities. But we have to move away from nominal measures of age that treat older people as a problem. By investing in a longevity dividend, we can offset the threat of an ageing society.

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