Dependency: it’s not black or white

Frances Coppola makes some interesting points about dependency ratios, sparked by this article from The Economist. We often see charts showing the proportion of the population aged over 65 compared to those between 16 and 64, based on the assumption that the former aren’t working and the latter are.

The trouble is, as Frances points out, that the assumption is a massive over simplification. At the younger end, there are a lot of young people in education. In the middle, you’ve got the unemployed and disabled, those not working through choice, and those that are working but who also receive benefits. And at the older end there are increasing numbers of people who are both working and drawing pensions. Being economically active is not an all or nothing state.

Frances argues that, on the whole, there are few people over 65 who are not partially or fully dependent. But the main reason that the raw ratio is misleading is the large number of younger people who are also partially or fully dependent.

The dependency ratio is a crude measure that takes no account of the actual economic contributions made by people in different circumstances and at different stages in their lives. A few over-65s working mainly part-time to top up their state pensions doesn’t invalidate the ONS’s dependency ratio calculation. But a large number of people dependent on state benefits to top up their wages does. We don’t just have a demographic problem. We have a low wage problem.