The Economics Story: … Population Ageing

Fortnightly insight into the current state of the economy and how it relates to Dorset by Nigel F Jump, Chief Economist of Strategic Economics Ltd (a Dorset Company) and Visiting Professor in Economics at the Universities of Bath and Plymouth.

See: www.strategiceconomics.co.uk

The UK population is getting older. For the first time, there are more people over 65 than under 15 years old and the proportion in the former age group is about 1 in 6 compared with 1 in 20 a century ago. All the forecasts are that these ratios will rise over the years to 2050 as life expectancy lengthens. Policy makers fret that the economy will be weaker because there are fewer earning-workers to support every inactive older person and because the latter will require more state health and welfare support.

Dorset has many places with a relatively old population. The Parliamentary constituency of Christchurch, for example, leads the England and Wales list with almost a third of its population older than 65 (see table). West Dorset ranks sixth with a quarter of its people over 65. All Dorset constituencies are above the England and Wales average: even Bournemouth where the presence of a student population helps to reduce the aggregate share.

Dorset Population: % over 65, Mid-2012

& Rank out of 573 England & Wales Constituencies

Source: ONS

Pessimists and many policy makers focus on the ‘old age dependency’ ratio – a simple division of the number who have reached the state pension age (65+) by the number who are between 16 and 64. The legislated increases in the pension age will reduce this percentage in forthcoming years but this is a blip. Demographers expect that, in 20 years time, or so, this ratio will exceed 35%.

This measure, however, is not really useful. Simply, it assumes all people aged 16-64 are working and all people over 64 are not and that having more in the older age groups implies more dependency. None of this is true. 

• Actually, over time, the numbers 16-64 who are not economically active is shifting (students are students longer, more women work and more men and women work part-time: those that are working are mostly working fewer hours than their forebears. 

• Also, more over 65s (over a million) are working (though perhaps not always being paid) and medical researchers say that health and welfare dependency is not increasing for the average individual. Most individual dependency is in the last few months of life regardless of how old you are in those last few months.

Jeroen Spijker and John MacInnes (S&M), in a recent British Medical Journal (16 November 2013), suggest that, to determine ageing, we should look at the ratio of people with a remaining life expectancy of less or equal to 15 years to the number actually in employment. (I would prefer to relate this to average hours worked but the message is probably similar). 

S&M’s work shows that dependency is actually falling and likely to reach a fifth by 2020. It will then start to go up again but, by 2050, the ratio is more likely to be a quarter than a third (the peak reached in about 1980). Moreover, this assumes there is no trend towards longer working in the upper age bands. If there is, which seems probable given the ‘push’ from government changes to welfare etc, the dependency ratio will be still lower. Furthermore, some suggest those now moving into and through their sixties and early seventies are less fit and healthy (more obese and sedentary) than their parents and the future increase in age expectancy may actually be over-stated. 

East Dorset has the highest life expectancy in the land.  The consensus is that this implies a greater burden on public services and, thereby, the working population.  The real world, however, is not that simple.  The arguments summarised here mean that the social and economic costs of demographic ageing may be exaggerated.  The policy makers and planners need to be discerning, looking at a more disaggregated level when they attempt to plot the demographic future and its economic consequences.

Professor Nigel Jump, 1st December 2013