Economic support ratios and the demographic dividend in Europe

BACKGROUND Support ratios and dependency ratios are widely used as indicators for measuring the effects of population ageing on economic development. Both of these indicators use fixed age limits to distinguish between the working and the dependent populations. OBJECTIVE We apply age-specific profiles of consumption and labour income instead of using arbitrary age limits. Based on these age-specific characteristics, we study the impact of changes in the age structure on the economy. In addition to looking at the compositional effect of age structure changes, we also consider savings/wealth effects. METHODS The National Transfer Accounts (NTA) offer researchers a new method for comprehensively analysing economic flows across age groups. Because they combine micro (survey) data and macro controls, the NTA provide detailed profiles of consumption and labour income by age, as well as age profiles of transfers and assets, through which the differences between consumption and labour income are covered. RESULTS The development of the " NTA support ratio" for 2010-2050 indicates that the compositional effect of the changing population structure on economic development will range from -11% for the UK to -25% for Slovenia, which exceed the values of the conventional support ratio. The positive saving/wealth effect is almost negligible for the countries studied, except for the UK, Germany, and Spain. CONCLUSIONS Given the current profiles of consumption and labour income in the European NTA countries, the rates of growth in the support ratio induced by the changing demographic structure will be negative in these countries. A positive effect of increased saving/wealth can counteract this decline in the support ratio, but depends on the institutional settings in which the elderly finance their consumption.