The dependency ratio measures the fraction of dependents in a population. Dependents refer to people who are not in the workforce, such as those who are either too young or too old to work. The ratio is always expressed as a percentage and is calculated by dividing the number of people under age 15 and above age 64 by the number of people between the ages of 15 and 64, then multiplying by 100. The dependency ratio becomes a source of economic concern in countries with an old age dependency ratio, where there are a large number of dependents, particularly above age 64. This poses problems for providing social security and pension for those who have reached retirement age.
Economists can make several important discoveries about a society by studying its age dependency ratio. Of course, the number of working people versus the number of non-working people can be concluded. High dependency ratios indicate that those who are working have a greater responsibility than other countries to provide for the dependents. This aid comes in the form of social security, taxes or shared income, in the case of parents providing for children.
The portion of the ratio that consists of children is referred to as the young dependency ratio, while the portion of retired people is called the elderly dependency ratio. These two ratios can be compared as well. For example, if a society has 10,000 people, and 2,000 are under age 15 and 3,000 are over age 64, the youth ratio is 66.7 percent (2,000 divided by 3,000).
The dependency ratio has this name because it indicates that those who are under or above working age are dependent on those who work. Children under age 15 generally rely on their parents or guardians to support them financially, while the older members of the population count on government assistance and pension to provide for them financially throughout retirement. A portion of the working population’s income goes to dependents, whether through income or taxes. The population dependency ratio does not always provide an accurate representation of economic dependency since there are people between the ages of 15 and 64 who are dependents, such as the unemployed or handicapped, including those who are disabled and mentally ill. Rather than using the dependency formula, a better way to get an idea of the number of dependents in a society is to calculate the number of people receiving disability benefits.