Joseph Chamie :
Ageing raises critical questions about the viability of pension systems and healthcare.
As the world population ages and economies slow, get ready to hear another acronym – PSR. The Potential Support Ratio, or the ratio of the working-age population, 15 to 64, per one person 65 and older, may reveal more about the overall health of an economy than the gross domestic product, unemployment rate or other common indicators. This demographic ratio may turn out to be far more consequential for decision-making, resource allocations and societal wellbeing than other commonly utilised economic indicators. A lower PSR may signal economic stress with more elderly depending on fewer young workers to keep the economy humming.
The PSR has weighty implications for governments and businesses concerning the labour force, taxation, education, housing, production and consumption, retirement, pensions and health services. The unprecedented shift towards a larger proportion of older persons and concomitant declines in workers is gradually and inexorably necessitating redesign of national economies.
In 1950 when world population was much younger, with a median age of 23, the global potential support ratio was about 12 people of working age per one person aged 65 years or older.
Today, the world PSR has declined to eight and by the year 2050 is projected to decline to four. Although the ratios for individual countries show considerable diversity, the overall trend is both unmistakable and striking: fewer people of working age per elderly person than in the past.
For the older industrialised countries the current PSRs are typically less than six, with Japan as low as two. By 2050 the PSRs will be substantially lower. In countries such as Germany, Italy, Japan and South Korea, PSRs are expected to fall to about 1.5 working-age people per each elderly person. In contrast, current PSRs for the less developed countries including India, Iran and Nigeria are generally well above 10. By midcentury, however, most of those countries will also confront aging populations, with PSRs falling to less than five for countries like India, Turkey and Iran. The notable exceptions to that trend are in Sub-Saharan Africa. The PSRs of many African countries in 2050 are expected to be lower than today’s levels, but still high with PSRs anticipated at 17 for Angola, 16 for Uganda and 15 for Nigeria.
The drops in PSRs are the result of significant declines in fertility and mortality and impressive gains in human longevity.
Over the past 50 years the world’s average birthrate declined from 5 to 2.5 births per woman with more than 80 countries, nearly half the world’s population, experiencing fertility rates below the replacement level. Also global life expectancy at birth has increased from 47 years in 1950 to 71 today, with growing numbers of the elderly becoming centenarians.
Together, the remarkable demographic transition from high to low birth and death rates have dramatically changed the world’s age structure by notably increasing the proportions of elderly and decreasing proportions at younger ages. The age structure changes are most evident in more developed countries, where in 2015, for the first time, the proportion of elderly aged 65 years and older surpassed the number of children aged 0 to 14 years.
The countries furthest along in the population aging process are Japan, Italy and Germany. With decades of low fertility rates closer to one child rather than two children per woman and increasing longevity, the proportions of elderly in those countries exceed 20 per cent.
One-third of their populations are projected to be elderly by midcentury. At the same time, the proportions in the working ages of 15 to 64 years in those three countries, about 70 per cent during the 1990s, are expected to be close to 50 per cent by 2050.
More than half of the world’s countries and nearly all in the more developed regions consider population aging to be a major concern. Countries, especially in more developed regions, are experiencing unprecedented aging population structures. Effectively handling the increasing numbers of elderly and the simultaneous declines in tax-paying workers present unprecedented challenges for virtually every sector of society.
Above all, perhaps, population aging raises critical questions about the viability of pension systems and health services for the elderly. As is often the case when confronting slow-moving, yet momentous demographic trends, some governments defer addressing the consequences to others in the distant future. Long postponements, however, increase the difficulty and costs of implementing policy steps necessitated by population aging.
(Joseph Chamie is former director of the UN Population Division).
