What is the dependency ratio?

The dependency ratio is a measure of the number of dependents 0-14 and over 65, compared to the general population aged 15-64. This demographic indicator gives an overview of the number of people of non-working age, compared to the number of those of working age. It is also used to understand the relative economic burden of labor and has ramifications for taxation. The dependency ratio is also called the total dependency ratio or the youth dependency ratio.

Key points to remember

  • The dependency ratio is a demographic measure of the ratio of the number of dependents to the total working-age population in a country or region.
  • This indicator paints a picture of the composition of a population relative to its labor force and can shed light on the fiscal implications of dependency.
  • As the overall age of the population increases, the ratio can be modified to reflect the increased needs associated with the aging of the population.

The formula for the dependency ratio is





Dependency ratio

=



#

Dependents



Population aged 15-64





1






\text{Dependency ratio} = \frac{\# \text{Dependencies}}{\text{Population aged 15-64}} \cdot 100


Dependency ratio=Population aged 15-64# Dependents1

What does the dependency ratio tell you?

A high dependency ratio means that people of working age and the economy as a whole face a greater burden to support the aging population. The youth dependency ratio only includes those under 15, and the old age dependency ratio focuses on people over 64.

The relationship of dependence attempts to separate those of working age, deemed aged between 15 and 64, from those of non-working age. It also provides an accounting of who has the potential to earn their own income and who is most likely not to earn their own income.

Various employment regulations make it unlikely that people under the age of 15 will obtain employment for personal income. A person who reaches the age of 64 is generally considered normal retirement age and they are not necessarily expected to be part of the labor force. It is the lack of earning potential that generally qualifies those under 15 and over 64 as dependent as they often need outside help to support themselves.

An analysis of dependency ratios

Dependency ratios are usually examined to compare the percentage of the total population, classified as working age, that will support the rest of the non-working age population. This provides an overview for economists to track changes in population. As the percentage of citizens who do not work increases, those who do work are likely subject to increased taxes to compensate for the increase in the dependent population.

Sometimes the dependency ratio is adjusted to reflect a more accurate dependency. This is because people over 64 often need more government assistance than dependents under 15. As the overall age of the population increases, the ratio can be modified to reflect the increased needs associated with the aging of the population.

Dependency ratio example

For example, suppose that the mythic country of Investopedialand has a population of 1,000 people, and there are 250 children under the age of 15, 500 people aged 15 to 64 and 250 people aged 65 and over. The youth dependency ratio is 50%, or 250/500.

Dependency Ratio Limits

The dependency ratio only takes age into account to determine whether a person is economically active. Other factors can determine whether a person is economically active beyond age, including student status, illness or disability, stay-at-home parents, early retirement, and long-term unemployment. Also, some people choose to continue working beyond age 64.

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