Abstract
In this study, we construct a new dependency ratio measure by taking into account the consumption needs of the young and elderly people, and the productivity of middle-aged people. Different from the way that Cutler et al. (1990) and Weil (1999) constructed the relative needs by using the average consumptions of each age cohort of people, we estimate the factor of relative needs of people at different ages based on a regression model, which embraces the household age compositions and size in the assessment. Our analysis uses household survey data from five developing countries in Asia— Bangladesh, Cambodia, the People’s Republic of China (PRC), Thailand, and Viet Nam. To our best knowledge, this is among the pioneer work exploring such patterns for these countries. Focusing on the PRC, we further examine whether consumptions depend on the coresidence style. We found that (i) the consumption- and productivity-adjusted dependency ratio (both total and old dependency ratios) are consistently lower than the one that is traditionally defined across all five countries in our sample, and the differences vary from country to country; (ii) in the PRC, the differences between traditional dependency ratio and the consumption- and productivity-adjusted dependency ratio grow larger in more distant future; and (iii) in the PRC, the relatively younger elderly members between 65 and 72 years old help in reducing the consumption of young members in their households, and the elderly members who live alone consume more than their peers who live with their offspring. We also simulate the impacts of smaller households, urbanization, and economic growth on consumption for the PRC, based on our model.
Highlights
Dependency ratio, especially old dependency ratio, has been widely used as an indicator to monitor a population’s age structure and its implication on socioeconomic development
The authors recognized the different needs of people at different ages, such as people younger than 20 years old, which spend more for education than people in other age groups ($2,553 against $309 in 1989 dollars), while people who are 65 and over spend more for health than those under 64 ($5,360 against $1,262)
Building on our proposed methodology, we found the following: (i) The consumption- and productivity- adjusted dependency ratio were consistently lower than those that were traditionally defined across all five countries in our sample; and between countries, the differences between the consumption- and productivity-adjusted dependency ratio and those that were traditionally defined varied from country to country. (ii) For the People’s Republic of China (PRC), the relatively younger elderly members of the population between 65 and 72 years helped reduce the consumption of young members in their households, while the elderly members who lived alone consumed more than their peers who lived with their offspring
Summary
Dependency ratio, especially old dependency ratio, has been widely used as an indicator to monitor a population’s age structure and its implication on socioeconomic development. The most important consideration is the savings-driven economic growth and the sustainability of the pension system. The former affects economic growth and the latter impacts on society’s stability. The effort of incorporating the different needs of people at different ages into the dependency ratio goes back to Cutler et al (1990). Prskawetz and Sambt (2014) extended the approach of Cutler et al (1990) by differentiating the population into more age groups, and constructing and/or comparing the economic support ratios across the European countries using the National Transfer Accounts data In constructing the “support ratio,” Cutler et al (1990) constructed a needs-weighted consumption measure, where the number of people under 20 was adjusted by multiplying 0.72, while the number of people above 65 was multiplied by 1.27. Weil (1999) used these factors to incorporate the relative needs of the young and old in deducing the optimal fertility rate and population growth when pursuing consumption maximization. Prskawetz and Sambt (2014) extended the approach of Cutler et al (1990) by differentiating the population into more age groups, and constructing and/or comparing the economic support ratios across the European countries using the National Transfer Accounts data
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