The dependency ratio postulates a calculation in ascertaining the proportion of citizens aged 15 and above through the lens of the total working-age population as a determinant of a nation’s demographic composition. The age range for workers is 15 to 64, and their social position is based on the fact that most of the working population actively seeks employment and that the dependent population relies on the working population for sustenance. Due to the lack of constant financial avenues, the vulnerable population cannot support itself. In this case, the dependence ratio index provides extremely valuable information, but the measurement error may be severe. Since most people above the age of 15 continue their education while many others opt to continue working after the age of consideration has passed, there may be differences between the numbers and reality. The dependence ratio is high if the proportion of people dependent on others increases to the point where there are more unemployed than employed. A country’s economy is in a position where it must significantly support the dependent population financially when the dependence index value rises. A high dependence ratio indicates an aging population. An elderly dependency rate that is too high can be detrimental to a country. The stance postulates the need to examine the current trends in ascertaining that a high age dependency ratio impacts the nation’s potential output, the government’s control over the nation’s and its citizens’ financial resources is a key determinant of how to deal with the dependency ratio. A high dependency ratio leads to governments taking on debt, which can result in significant economic problems, insolvency, and inflation over time.
A high age dependency ratio impacts the nation’s potential output. As the population ages, the reduction in GDP per capita is of significant concern. The reduction of this indicator, which is frequently regarded as a proxy for national prosperity, postulates negative aspects of the economy of the nation. Nations with a high age dependency ratio, like Niger at 110.26 are categorized as being in a late stage of demographic change. The group nations’ potential output has decreased since fewer individuals can support the economy through paid labor. Additionally, as a population ages, both the rate of employment and the productivity of the working population decrease. It’s because more older individuals are choosing to work rather than merely watching from the sidelines. According to research, people’s health and mobility start to deteriorate as they age, which makes them perform less well than younger ones (Muszyńska et al, 121). Enterprises have a big stance in determining how policies are developed to deal with the effects of an aging population and how businesses could adjust to a dwindling labor force. In an effort to increase output, protect their stock value, and avoid a slump in the economy overall, several corporations have chosen to switch out human workers for automated machinery. If there is a labor shortage and salaries are rising, businesses may decide to use robots in production rather than shrink or relocate to countries with a larger and younger workforce. The economy of the nation and the output per person both stand to gain from this strategy as noted in Germany which holds a 33.7 dependency ratio (Ingham et al, 220).
The government’s control over the nation’s and its citizens’ financial resources is a key determinant of how to deal with the dependency ratio. The age-dependency ratio increases as the number of people who need pensions, public health care services, and education starts to exceed the number of people who can provide them. When the number of dependents is almost equal to the number of suppliers, neither the nation nor its citizens benefit. This ratio affects the total amount of taxes collected as well as the percentage of personal income that they tax (McKay et al, 226). Higher taxes might result in resentment among residents and even emigration because they take away from what people have lawfully earned as noted in Bulgaria which hold a 33.8 percent dependency ratio. People may therefore think about leaving their own nation in quest of better employment prospects and higher salaries. The issues that arise when highly skilled workers depart a nation with a high dependency ratio get substantially worse. People of reproductive age are fleeing the country in large numbers in Bulgaria making the situation drastically worse, but the prognosis for the future also gets a more worse. Less people paying taxes means that those who do in the future will have less money to spend (Muszyńska et al, 121). Despite the fact that they regularly pay for the dependant group, it is uncertain whether there will be enough people in the working age group to cover their pensions in the same amount as they do now. The second action that is likely to be seen is the relocation of labor into the grey market. The grey market is a system for unregulated but legal purchasing and selling of items. In this area of the economy, goods are frequently tax-exempt, and transactions are frequently unrecorded. People wouldn’t have to give the government a substantial portion of their withdrawals using this strategy. Even if they continued to work the same number of hours, if they kept their present schedule, their take-home earnings could rise by as much as 20% (Ritchie et al, 12). Governments must prepare for a scenario in which demands cannot be met by citizen contributions which depicts one of the outcomes of the increasing tax load. The government must use resources from the nation’s reserves to address this situation. They accrue when countries borrow from their own central banks or multilateral organizations like the European Union, excluding taxes.
A high dependency ratio leads to governments taking on debt, which over time can result in significant economic problems, insolvency, and inflation. The first scenario can be traced to the case of Germany. The nation pledged to let refugees who were fleeing from North African and Arab nations stay nearby and eventually settle there for a longer period of time. Even though it was a horrible idea in theory, it assisted Germany in increasing the reproductive circle. The nation acquired more tax payers as a result that aided to cover the expense of caring for the dependents (Concialdi, 310). Another nation that has made an effort to address the aging population is Poland. While the government’s decision to require applicants to be at least 500 years old may not have been wise, there can be little question that it was motivated by the desire to lower the dependence ratio. The program’s goal was to encourage more young people to start families and boost the population overall (Kim et al, 245). The final ideal addition in Japan. Despite having one of the greatest dependency ratios in the world, the country’s enormous worker productivity causes its GDP per capita to drop more slowly than in the majority of other wealthy countries. In order to solve this issue, the Japanese government has given the reduction of unemployment and the growth of the tax base through the immigration of younger people as a top priority (Muszyńska et al, 150).
In conclusion, the discussion ascertains that high age dependence ratio has an impact on the nation’s potential output, the government’s control over the nation’s and its citizens’ financial resources is a key determinant of how to deal with the dependency ratio and a high dependency ratio leads to governments taking on debt, which over time can result in significant economic problems, insolvency, and inflation. Any nation’s economy suffers from a high dependence ratio. In affluent countries, where the demographic shift is already well underway, the issue of an aging population is immediately apparent. In the last stages of a demographic change, there is a net loss of life as the birth rate declines and the death rate increases. The governments of developed nations are frantically trying to come up with a solution. As government remedies, more immigration, the implementation of welfare programs, technological advancements to expedite production, higher outputs, and job creation were all suggested. All of these actions must be taken in order to prevent a worldwide economic catastrophe. The catastrophe might be brought on by the nation’s growing debt as well as labor shortage!
Works Cited
Muszyńska, Magdalena M., and Roland Rau. “The old-age healthy dependency ratio in Europe.” Journal of population ageing 5.3 (2012): 151-162.
Ingham, Barbara, Andrejs Chirijevskis, and Fiona Carmichael. “Implications of an increasing old-age dependency ratio: The UK and Latvian experiences compared.” Pensions: An International Journal 14.4 (2009): 221-230.
McKay, Andrew, and David Lawson. “Assessing the extent and nature of chronic poverty in low income countries: issues and evidence.” World Development 31.3 (2003): 425-439.
Ritchie, Hannah, and Max Roser. “Age structure.” Our World in Data (2019).
Concialdi, Pierre. “Demography, the cost of pensions and the move to pension funds.” Review of political economy 18.3 (2006): 301-315.
Kim, Soyoung, and Jong-Wha Lee. “Demographic changes, saving, and current account in East Asia.” Asian Economic Papers 6.2 (2007): 22-53.
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