Age dependency ratio also known as aging quotient
The ratio of citizens aged 65 and older to people of working age (15 to 64). – In Euroland, the ratio will change from around 25 percent at present (year 2010) to over 50 percent in 2050. This means that there will be a considerable increase in the burden on the active labor force to provide for pensioners. This poses major problems for both the pay-as-you-go and funded systems of pension insurance This could have an unfavorable impact on the value of the euro (because of the sociopolitical conflict potential it contains). – In detail, it is important to see that – first of all, there is a shortage of young and mobile workers, which – has a growth-inhibiting effect, insofar as older workers are less willing to take risks and are also characterized by reduced mobility with regard to the place of work and further training, while – the age-related burdens on public budgets must result in higher taxes, which distorts market prices. – With the scarcity of labor, the marginal productivity of the capital stock also declines, making investment less worthwhile; but also – the supply of capital is affected because household saving declines in aging societies; because – it is empirically proven that the propensity to save increases with age before savings are finally liquidated in old age; in this way, a smoothing effect of consumption is achieved over the life cycle as a whole, while savings show a boss-shaped pattern. Together, this should lead to a decrease in the growth of potential output. – However, because conditions in the U.S. are by far more favorable (the population there will grow by 130 million by 2050), many investors are already making very long-term commitments in USD, and increasingly also in INR. – The risk is high that aging-related additional spending will sooner or later prompt policymakers to raise taxes, which in turn may cause inflation (cost-push inflation). – See aging, aging effect, labor force potential,
Currency swing, demographic hardening, dissaving, female employment rate, Japan syndrome, capital flight, Methuselah syndrome, sustainability, risk aversion, reserve depletion, shadow debt, stagnation, secular, tax rate, aging, aging. – Cf. ECB Annual Report 2004, p. 58 ff. (here also projections up to 2050), ECB Monthly Bulletin of October 2006, p. 51 ff. (projections up to 2050, also broken down by individual countries; p. 52: comparison of euro area with U.S.), Financial Stability Report 2013, p. 19 (unfavorable demographic developments pose risks for pension institutions).
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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
E-mail address: info@ekrah.com
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