Dependency Ratio

The dependency ratio is a demographic measure that compares the number of people who are typically too young or too old to work with the number of people of working age. In the standard version used by the United Nations, the World Bank and national statistics offices, dependents are children aged 0 to 14 and people aged 65 and over, and the working-age population is everyone aged 15 to 64. The result is usually expressed as dependents per 100 people of working age.

The ratio is a quick guide to the economic pressure that a population's age structure places on those who work and pay taxes. It is split into a youth dependency ratio and an old-age dependency ratio, and it is one of the core indicators in demographics. Governments, pension planners and credit-rating agencies use it to judge the long-term cost of social security, health care and education.

Picture a household where some members earn and others are children at school or grandparents in retirement. If three earners support one dependent, money stretches comfortably. If two earners support two dependents, things are tighter, even if everyone's needs are the same.

A country works in a similar way. Children need schools; older people need pensions and health care. Those costs are largely paid from the work and taxes of people in between. The dependency ratio is a rough count of how many "earners" each country has for each person they support, and it shows how that balance is shifting as countries have fewer children and people live longer.

The total dependency ratio is:

• $P_{0\text{-}14}$ is the number of people aged 0 to 14.
• $P_{65+}$ is the number of people aged 65 and over.
• $P_{15\text{-}64}$ is the number of people aged 15 to 64.

The youth ratio uses only $P_{0\text{-}14}$ in the numerator and the old-age ratio uses only $P_{65+}$.

Worked example: a country of 10 million people has 2 million children under 15, 6 million people aged 15 to 64 and 2 million aged 65 and over. Its total dependency ratio is $(2 + 2)/6 \times 100 \approx 67$, meaning about 67 dependents for every 100 people of working age. Its old-age ratio is $2/6 \times 100 \approx 33$, or three working-age people for each older person.

Eurostat put the European Union's old-age dependency ratio at 34.5% on 1 January 2025, up from 29.0% in 2015, or close to three people aged 15 to 64 for each person aged 65 or over. Japan has one of the highest old-age ratios in the world, while many countries in sub-Saharan Africa and South Asia, including Pakistan, have high youth ratios and low old-age ratios because of their young populations.

The ratio affects public finances, growth and savings in several ways:

• Pensions. In pay-as-you-go pension systems, today's workers fund today's retirees, so a rising old-age ratio means higher contributions, lower benefits, a later retirement age or more government borrowing. Funded schemes held by pension funds are less directly exposed but still depend on future economic output.
• Health and care spending. Older people use more health care, adding to government spending and, if not offset, to the national debt.
• Growth. A shrinking share of working-age people can slow GDP growth unless productivity rises faster or participation increases.
• Saving and interest rates. The life-cycle hypothesis predicts that people save while working and draw down savings in retirement, so ageing can change national saving and may affect the neutral interest rate.

Falling youth dependency can help growth. When birth rates drop, a country temporarily has many working-age adults relative to dependents, a window known as the "demographic dividend", which economists credit with part of East Asia's rapid growth from the 1960s to the 1990s, provided jobs and human capital investment were there to use it.

The age-based ratio is a blunt tool. Many 15- to 24-year-olds are in education, many people over 65 still work, and many working-age adults are not in the labor force at all, for reasons covered under economic inactivity. An economic dependency ratio instead compares people not in work, including the unemployed and inactive, with those who are employed. Some researchers use "prospective" ages that move the old-age threshold with life expectancy, since a 65-year-old today is typically healthier than one in 1960. Policies that raise participation, such as later retirement, support for working parents and immigration of migrant workers, can lower the economic ratio even when the age structure is unchanged.

Not all dependency is a cost: older people provide unpaid care and volunteer work, and children are future workers. The ratio says nothing about wages, wealth or how support is shared through transfer payments, families and markets.

• Eurostat: Population structure and ageing
• United Nations: World Population Prospects