World population implosion?

Public Interest, Fall, 1997 by Nicholas Eberstadt

The dimensions of that decline are reflected in projected "dependency ratios," for the number of persons 65 and older per 100 persons between the ages of 15 and 64. In 1995, under the current crisis of the Western welfare state, that dependency ratio comes out to roughly 20 - meaning that there are now about five people of working age for every person of retirement age. In 2050, by these projections, the dependency ratio in today's Western democracies would be above 50: The ratio of people 15 to 64 to people 65 and over would be less than two to one. In some countries, these projected ratios for the year 2050 would be still higher: 60 for Germany; 64 for Japan; and an amazing 80 for Italy where there would be only 125 persons in the 15 to 64 group for every 100 senior citizens.

Although populations in the "less developed regions" would not, in these projections, be so very "grey," those countries would likely be less capable of maintaining state-based pay-as-you-go retirement systems in the year 2050 than OECD countries are today. For one thing, the dependency ratio of elderly to working-age population would be higher for the "less developed regions," on average, than it is in any OECD country today. For another, the "less developed regions" half a century hence may not, on average, be nearly as affluent as the OECD countries are today. The calculations of the economic historian Angus Maddison suggest that, even after adjusting for international differences in purchasing power of local currencies, per capita GDP for what the UN terms "less developed regions" was about one-fifth of the "more developed countries" per capita GDP in the early 1990s - and less than one-sixth of the OECD countries. If these regions should enjoy long-term per capita growth rates of $ percent a year for the next half-century, their average output level would still be nearly 40 percent lower than OECD's today. (To get a sense of what this would mean, think of financing Western Europe's pension burden in the coming decade out of Western European incomes from the late 1960s.)

Already the actuarial status of state-run retirement systems in most OECD countries appears unsustainable. In the United States, according to calculations by economists at the OECD, the net present value of the unfunded deficit in our Social-Security system amounts to only 23 percent of GDP. I say "only" because the unweighted average of that deficit for the 20 OECD countries examined came to 95 percent of GDP. Even were the implicit social contract underlying these systems gutted - by, for example, restricting pension eligibility to cover less than a third of the retirement-age population - over half of these pension systems would still remain underfunded for the foreseeable future.

These OECD calculations, of course, pertain to the net present value of government pension systems today - when people of working age outnumber the retirement-age groups by roughly five to one. In 2050 - if the ratio of working-age to retirement populations were indeed two to one, or less - the net present value of the deficit in state pension systems as they are currently constituted would be vastly greater.