GDP, CPI — PSR? The potential support ratio (PSR) measures how many working-age people are in a population to support retirees, and “may reveal more about the overall health of an economy than the gross domestic product, unemployment rate or other common indicators,” according to Joseph Chamie, an independent consulting demographer and a former director of the United Nations Population Division.
PSR is the ratio of people between ages 15 and 64 to people 65 or older, regardless of employment status. In an article published Tuesday by Yale Global Online, a publication of the Whitney and Betty MacMillan Center for International and Area Studies at Yale, Chamie wrote that a lower PSR indicates an economy is in trouble, as there are more elderly people depending on fewer people of working age.
“The unprecedented shift toward a larger proportion of older persons and concomitant declines in workers is gradually and inexorably necessitating redesign of national economies,” he wrote.
As the number of workers paying taxes falls, governments must adjust budgetary allocations. Some do so by raising taxes, cutting spending on programs for the elderly or raising the statutory retirement age.
“Raising the statutory retirement age simultaneously increases the working-age population and reduces the elderly population. Raising the age threshold for the elderly from 65 to 70 years, for example, increases the global PSR from eight to 13 people of working age per one elderly person – roughly the 1950 level,” Chamie wrote.
To maintain the current ratio of global workers to retirees, the retirement age would have to be increased to 73 by 2050. In the U.S., the age would have to increase to 72, while in South Korea, retirement age would have to be increased to 80.
“Admittedly, the PSR is a relatively crude measure to reflect the momentous changes in relative numbers of workers and retirees,” Chamie acknowledged. “Clearly, not everyone among the elderly is retired, and not everyone of working age is employed. Also, the traditional threshold age of 65 for the elderly may be viewed as arbitrary, especially with varying life expectancies among countries.”
He added, though, that “the simplicity of the PSR is also its major strength as it clearly reflects fundamental changes occurring in population age structures, thus permitting comparisons across countries and time periods with varying employment and retirement circumstances.”
In 1950, the median age of the global population was 23, according to Chamie, with a PSR of 12 workers for every person over 65. Now, the PSR has fallen to eight and is expected to keep falling until it reaches four in 2050.
“Although the ratios for individual countries show considerable diversity, the overall trend is both unmistakable and striking: fewer people of working age per elderly person than in the past,” Chamie wrote.