From the April 2008 issue of Investment Advisor • Subscribe!

Transforming the Dependency Ratio

The nation's elderly population will more than double in size from 2005 through 2050, as the baby boomer generation enters the traditional retirement years, according to a recent report from the Pew Research Center. The study, U.S. Population Projections: 2005-2050, also revealed that because a considerable amount of baby boomers will be swelling the senior crowd, the "dependency ratio"--the relationship between the size of the working-age population (adults between the ages of 18--64 years old), on the one hand, and the young and elderly on the other hand--will rise to 72 dependents per 100 people of working-age in 2050 from 59 for every 100 people of working-age in 2005. In other words, the number of working-age Americans and children will grow more slowly than the elderly population, and will shrink as a share of the total population. "A higher number of elderly or children relative to the number of workers translates into higher costs per worker to pay for all government programs, including those targeted at the young and old such as schools and Social Security," said the new analysis, based on detailed assumptions about births, deaths, and immigration levels--the three key components of population change.

The center also projects that the foreign-born share of the work force will increase to 23% by 2050 from 15% in 2005, with the Hispanic share more than doubling, to 31%. Furthermore, if present trends continue, within two decades, the nation's foreign-born population will surpass the historic 19th-century peak of nearly 15% of all residents. This is significant, since such an outcome could indicate, according to analysts, a nation divided politically between older, whiter, voting retirees who are increasingly supported by a younger, darker, working population that, as immigrants, may be disproportionately ineligible to vote.

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