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Advantages and Disadvantages of the Support Dependency Ratio: The Pros and Cons of the Dependency Ratio

By Edited Nov 13, 2013 0 0

Introduction to the Support Dependency Ratio

Before discussing the intrinsic advantages and disadvantages of the support dependency ratio, I believe it is first best to gain a clear understanding of the definition and concept of what exactly is the support dependency ratio. 

The support dependency ratio (amongst its variations) specifically refers to number of non-economically contributing citizens (e.g. age between 0 to 15 as well as those who are pensioners - that of age above 65) compared to the amount of people who are economically contributing (e.g. 16-64 age). A ratio indicator that basically informs us of the amount of productive people (working adult) there are to one dependent person (infant or pensioner). In other rather 'looser' words, how many workers there are supporting non-workers.

-- It is important to know that there are several variations of such a dependency ratio, some for example are just age-dependency ratios (old-age dependency ratio), a support dependency ratio that specifically refer to the amount of pensioners there are to the working force (and does not include children) -- for more an extensive (and illustrative) overview of the old-age support dependency ratio check out the video below 'What exactly is the old-age dependency ratio?'. There are also adaptations to the specific age categories (e.g. pension age of 70+) along with variance in specific definitions (e.g. what exactly constitutes someone who is not economically active?).

What exactly is the Old-Age Dependency Ratio?

Advantages of the Support Dependency Ratio

Future and Past Economic and Social Inference - a benefit we can gain from the support dependency ratio is that we can make reasonably accurate economic and social assumptions (for both the future and historical past). For example we know from a support dependency ratio that is 'high' - often associated with an ageing population, (meaning therefore there are few supportive workers essentially 'supporting' the dependent), what the corresponding likely economic consequences will be (or have been) to that particular society/country. In this case the society/country may face (or have faced) issues such economic public fund cost shortages to health care, education and general public welfare for those who are considered dependent (for more possible economic consequences and outcomes check out the video above 'What exactly is the old-age dependency ratio?').

Simple and Fast to Calculate - a positive aspect of the support dependency ratio is that once you have certain definitions in place and have all the necessary information and data at hand, to actually calculate the dependency ratio -- it is a fairly simple and fast calculation to calculate, therefore making the ratio a reasonably accurate figure to infer from. Of course the problem lies in error within the data (e.g. Is all the data accurate?Have there been omissions? Etc.) for making sure the correct ratio is published -- in which case, it is a lot harder to conduct in less economically developed countries for such data collection compared to more economically developed countries. (You can access all the support dependency ratios for countries across the world through the World Bank website.)

Disadvantages of the Support Dependency Ratio

The 'Real' Support Dependency Ratio - there is a difference between the support dependency ratio and that of the real support dependency ratio -- the real support dependency ratio assess those who are economically active with those who are considered economically inactive (e.g. students, sufferers of illness). Whereas the former simply compares ages within a society. The difficulty however lies in defining those who are economically inactive and active, and those of which who cross over and exactly what age ranges should be chosen. For example, is someone economically active simply because they do not have a job? What if they were rich enough to retire early -- are they still considered economically inactive? What if the student were to have a job as well? This therefore causes the rather negative aspect of the support dependency ratio by the fact it is open to many actions of statistical maniupluation.

The Effective Support (the Ignorance of Technology) - a rather big drawback of the support dependency ratio which is an argument many economists make is that the dependency ratio is ignorant of technology and that what of the 'effective labour force'. To demonstrate take the example of a country with a low level of technology (and productivity) compared to that of a country with a high level of technology (and productivity), given all else equal - with regards to the labour force etc. The country with a higher productivity level will be able to support more dependent persons with one productive person than that of the country with a low level of productivity. Hence, it is obviously difficult to compare 'historic past' and contrasting 'international' support dependency ratios accurately and in full.

Summary of the Advantages and Disadvantages of the Support Dependency Ratio

The support dependency ratio is an effective and  useful indicator of both past and future economic consequences, that is used extensively in human geography and  demographic economics, however it should not be interpreted without consideration of the points above. It should be understood that the support dependency ratio can be manipulated through definitions and that it cannot simply be compared from one country to the next -- without the consideration of effective workers and an effective labour force (i.e one support worker maybe able to support more dependent persons in one country to the next). 

If you have any additional advantages and disadvantages of the support dependency ratio, or any general remarks concerning the support dependency ratio or just in general then I encourage you to please leave a comment below.



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