Old-age dependency: is it really increasing in aging populations?

ABSTRACT

To account for economic dependency we propose an adjustment to the old-age dependency ratio based on savings of the elderly. Computations are simple and the adjusted ratio is aimed at retaining the exogenous character of the conventional demographic ratio. Data from an economy with stagnating incomes and a fast growing elderly population (Japan) and an economy with fast growing incomes (Singapore) highlight that the conventional dependency ratio substantially exaggerates the burden of the elderly.

KEYWORDS:

• Retiree savings
• age-income profile
• birth cohorts
• savings-adjusted old-age dependency ratio
• savings-adjusted old-age support ratio

JEL CLASSIFICATION:

• C1
• E62
• J11

Acknowledgments

The author would like to thank Basant Kapur, Chan Kok Hoe, Roland Cheo, Yoko Ibuka and the participants of the Five East Asian University Symposium held at Keio University in February 2017 for their valuable comments and Zhang Shen for research assistance.

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

¹ Both cross sectional and cohort age-income and age-expenditure profiles show an inverted U shape.

² In these regressions the number of observations available to estimate the cohort coefficients drops for early and later cohorts. Therefore, it is safer to use the middle cohorts to estimate the savings.

³ One advantage of our methodology is that ${\bar{S}}^{\ast }$remains unaffected by over-estimation or under-estimation of savings when the estimation methods of savings and expenditure are consistent with each other. We estimated (7) with age dummies and observe that ${\bar{S}}^{\ast }$remains almost the same.