Aging vs Youthful Populations and Economic Burden

An aging population has a large and growing share of older people (usually aged 65 and over) and a low share of children, while a youthful population has a large share of children and young people; each creates different economic burdens and opportunities, such as pension and health costs in aging countries and the need for schools and jobs in youthful ones. In brief: the median age is about 15 years in Niger and about 49 in Japan. The dependency ratio, (people under 15 plus people 65 and over) ÷ (people aged 15–64) × 100, summarizes the burden on the working-age population: a youth-dominated ratio signals the need for education and jobs, and an old-age-dominated one signals the need for pensions and care.

Age structure influences economic growth, public spending and politics. This guide explains the features and challenges of aging and youthful populations, the policies that respond, compares the two types in a table, works through dependency and pension calculations, outlines the history and corrects common mistakes.

What are the features and challenges of aging populations?

Population aging results from falling fertility and rising life expectancy. It is most advanced in Japan, Italy, Germany, South Korea and much of Europe and East Asia, where those aged 65 and over make up 20–30% of the population, and it is occurring fast in many middle-income countries. Challenges include:

• Pensions and public finances: fewer workers support more pensioners, so the cost of pensions rises, and state pension systems paid out of current taxes (pay-as-you-go) come under strain.
• Health and long-term care: older people use more health services, and demand for care homes and home care grows, which is expensive and labor-intensive.
• Labor shortages and slower growth: a shrinking workforce can reduce output and tax revenue and may slow innovation, although older workers can remain active.
• Social change: more single older people, changes in housing demand, and effects on the political balance, since older voters are a larger group.
• Declining population: where fertility is far below replacement, the population shrinks, and rural areas and small towns are emptied, as in parts of Japan and eastern Europe.

There are also opportunities: the “silver economy” of goods and services for older people, volunteering and caring by retirees, and longer working lives.

What are the features and challenges of youthful populations?

Countries in Sub-Saharan Africa, parts of South Asia and the Middle East have a high share of children and young people, often 40% or more under age 15, because fertility is still high and has fallen only recently. The challenges are:

• Education and health: providing schools, teachers and child health services for fast-growing cohorts.
• Jobs: creating many jobs for the millions of young people entering the labor market each year. Youth unemployment and underemployment can cause frustration, migration and instability in a “youth bulge.”
• Pressure on resources and infrastructure: housing, food, water and services for fast-growing cities.
• Poverty: high dependency ratios reduce household savings and investment in each child.

The opportunity is the demographic dividend: if fertility falls and the large young cohort finds productive work, the economy can grow quickly, as in East Asia. A youthful population also brings energy, innovation and a long working life ahead.

What policies respond?

For aging societies: raising the retirement age and encouraging longer working lives, changes to pension systems (for example, funded or private pensions and contribution increases), increasing female and older worker participation, immigration of workers, support for families to have children (pronatalist policies), investment in health and preventive care, automation and productivity growth and age-friendly design. For youthful societies: investment in education, especially for girls, job creation and skills training, family planning, health care, and encouraging private investment and trade. Both types of country need strong institutions and planning, since age structure changes slowly and its effects are predictable decades ahead.

Aging and youthful populations compared

Worked example: dependency and pensions

The values are hypothetical and illustrate common calculations.

1. Aging country: 14% of the population are aged 0–14, 58% are aged 15–64 and 28% are 65 or older. The total dependency ratio is (14 + 28) ÷ 58 × 100 = 72.4. Of this, the old-age dependency is 28 ÷ 58 × 100 = 48.3 and the youth dependency is 14 ÷ 58 × 100 = 24.1.
2. Youthful country: 44% are aged 0–14, 53% are aged 15–64 and 3% are 65 or older. The total ratio is (44 + 3) ÷ 53 × 100 = 88.7, mostly youth dependency (44 ÷ 53 × 100 = 83.0).
3. Support ratio: in the aging country, the number of workers per person aged 65 and over is 58 ÷ 28 = 2.07. In 1970, with 8% aged 65 and over and 65% working age, it was 65 ÷ 8 = 8.1, so the number of workers supporting each pensioner has fallen by about three quarters.
4. Pension burden: a pay-as-you-go pension pays 15,000 a year to each of 14 million pensioners, a total of 210 billion. With 29 million contributing workers (a support ratio of about 2.07), each worker has to contribute on average 210,000,000,000 ÷ 29,000,000 = about 7,241 a year. If the support ratio falls to 1.5 workers per pensioner and the pension stays the same, each worker has to contribute 15,000 ÷ 1.5 = 10,000 a year, about 38% more.
5. Retirement age: raising the retirement age from 65 to 68 moves people aged 65–67 from dependents into workers. If each single-year age group is 1.2% of the population, then 3 × 1.2 = 3.6% of the population changes group, and the old-age dependency falls from 28 ÷ 58 = 0.483 to (28 − 3.6) ÷ (58 + 3.6) = 24.4 ÷ 61.6 = 0.396, which is 39.6 per 100.
6. Jobs needed: a youthful country with a labor force of 20 million adds 2% (400,000) a year. To keep unemployment from rising, it must create 400,000 new jobs each year, which over 10 years is 4 million.

How did the issue develop?

The first national state pensions were introduced by Otto von Bismarck in Germany in 1889, with the pension age set at 70 and later lowered to 65, when few workers lived that long. As life expectancy rose in the 20th century, pension systems came under pressure. Japan became the first country with a shrinking population in the 2000s, and Europe and East Asia followed. In low-income countries, rapid growth of the number of young people has been a challenge since the 1960s and 1970s, and the Asian economies showed in the 1980s and 1990s how a falling birth rate and investment could produce a demographic dividend. The UN projects that the number of people aged 65 and over will roughly double by 2050 and that the world’s median age will rise from about 30 years today.

Which mistakes are common?

Mistake 1: Treating all people over 65 as dependents

Many work, volunteer and care for others. The ratio is only a rough guide, and health and employment of older people are improving in many countries.

Mistake 2: Believing that immigration fully solves aging

Immigrants also age, and large numbers would be needed to stop the rise in the old-age dependency ratio. It helps, but must be combined with other policies.

Mistake 3: Seeing a youthful population only as a burden

With education, health and jobs, young populations are a source of growth. The challenge is to provide them with opportunities.

Mistake 4: Expecting quick demographic change

Age structure changes slowly. Policies today, such as in education or family support, have their main effects decades later.