Economic support ratios and the demographic dividend in Europe

Support ratio and dependency ratio are widely used as indicators for measuring the effects of population ageing on economic development. However, both of these indicators use fixed age limits to distinguish between the working and the dependent populations. We apply age-specific profiles of consumption and labour income derived by NTA method instead of using arbitrary age limits. In this way we improve the above mentioned indicators and we study the impact of changes in the age structure on the economy.

In the calculations we apply the National Transfer Accounts (NTA) method, which offers a comprehensive analysis of economic flows across age groups. Because NTA combine micro (survey) data and macro controls, they provide detailed profiles of consumption and labour income by age, as well as age profiles of transfers and assets, through which the differences between consumption and labour income are covered.

The results show that the decline in support ratio will be even larger in the future if using NTA age profiles instead of the fixed age limits. On the other hand, the decline could be mitigated through higher savings and wealth induced by population ageing. However, the magnitude of this channel depends on how the consumption of elderly is financed – it is substantial only if the share of asset income in covering consumption is high enough. It turns out that only in the UK, Germany, and Spain this effect is important, but not in Slovenia.

Based on the paper: Prskawetz, A., & Sambt, J. (2014). Economic support ratios and the demographic dividend in Europe. Demographic Research, 30(34), 963-1010.