I was never a big fan of Economics. I had little interest in learning how people, firms and countries create wealth and how the ubiquitous markets behaved under varying conditions. At school, I studied the subject hard enough to ensure I did not fail. I was a bigger fan of “Radical Economics,” perhaps because at the time I was introduced to the subject, by the late, great Sir Dwight Venner in the early 1980s, radical thinking was “in vogue” especially at the University of the West Indies (UWI).
Recently, I came across a mea culpa of sorts written by Angus Deaton-Professor of Economics and International Affairs, Emeritus, at Princeton University and the 2015 recipient of the Nobel Memorial Prize in Economic Sciences-in which he admits some of the failings of his profession. Economists, he wrote, “…are often too sure that they are right.” At a personal level, he revealed that he no longer thinks globalization was responsible for the vast reduction in global poverty that occurred over the past 30 years. He now sees trade unions more positively and feels their decline over the past two decades “…is contributing to the falling wage share, to the widening gap between executives and workers, to community destruction, and to rising populism.” If Professor Deaton feels that way, who am I to feel otherwise?
One of the economic terms that initially, I struggled with and that continues to exercise my mind is “dependency ratio” defined by the World Bank, as the ratio of dependents-that is, people younger than 15 or older than 64-to the working-age population—that is those aged from 15-64. My challenge then, was I relied heavily on a literal definition of “dependency” which caused me to embrace the term as a measure of the economic burden that people between the ages of 15-64 carry for those who are below 15 and over 64. I was frustrated to learn that the term captures only the age composition of a population and had nothing to do with the degree of economic dependency. This revelation only deepened my dislike of economics. Why use the term “dependency ratio” when the term is not really about dependency?
The term came back to haunt me, this week, as I read a BBC story about the likely, social, and economic challenges of falling birth rates in two-thirds of the world’s countries. These challenges spring from aging and smaller populations on the one hand, and smaller workforces in relation to the number of pensioners, on the other hand. The article notes, that for a country to increase or maintain its population, it needs on average, a birth rate of between 2.1 and 2.4 children per woman. The concern is that a nation’s economic growth will likely be stifled if companies cannot recruit enough workers; and that pension schemes will be compromised if smaller workforces cannot afford to pay the pensions of a much larger, retired population. Definitions of “dependency ratio” aside, a declining birth rate confirms that the fate of those who do not work or cannot work, is highly dependent on those who work.
What piqued my interest in the article were the policy measures being implemented by countries to slow or reverse their declining birth rates. These measures include: (1) making it easier for women to have children, by providing childcare support, tax breaks and extended, fully paid maternity and paternity leave; (2) investing in healthcare to keep people heathier and employed for longer periods; (3) or allowing large-scale immigration. These measures do not appear to be working. And that’s not altogether surprising. From a biological standpoint, having children is relatively easy. The real challenge lies in trying to raise children amidst the steadily rising cost of food, energy, education, transportation and healthcare, and unpredictable job markets. Keeping people healthy over longer periods ought to be a priority for citizens and government alike. However, as recent protests in France have shown, most people are staunchly opposed to attempts by their Governments to raise their compulsory retirement age. In many cases, Governments have little choice, but to do this to keep pension schemes alive. Still, for many who have worked for more than 50 years of their lives, and are looking forward to retirement, the prospect of working for another 2-5 years before they can enjoy their pensions and what time they have left is too much to contemplate. Moreover, young people who are unable to find jobs are opposed to the idea of folks hanging onto their jobs beyond their retirement age.
Many retirees have found they simply cannot afford to not stay in work, past retirement to “make ends meet.” This is especially the case in the USA where the Bureau of Labor Statistics (BLS) estimates the number of workers aged 75 and older will almost double over the next decade. That’s mainly because even those US workers who work hard and are frugal, have no retirement savings. Put differently, these workers could not/cannot save for retirement.
Declining birth rates are also being experienced in the Caribbean. Gone are the days when, according to De Ashanti, Saint Lucia was “…in ah critical situation…she doh know how to control she growing population.” The situation has changed to the extent that in 2021, Saint Lucia’s fertility dropped to 1.40 births per woman, which represents its lowest value in a decade. With large swathes of self-employed workers not paying national insurance, the decline in the fertility rate has implications for the National Insurance Corporation (NIC). According to the last actuarial review of the NIC, based on an average, annual population growth rate of 0.2 per cent, for 2015 to 2034, and –0.4 per cent for the period 2034 – 2065, Saint Lucia’s population is projected to decrease from 180,634 in 2034 to 160,540 in 2065. The report notes that the aging of the general population will have a significant impact on the ratio of workers to retirees. It continues,
“The NIC is relatively young, so the long–term benefits branch has not yet reached a state of maturity and the cost of pensions, expressed as a percentage of insurable earnings is still increasing. However, the maturing process of the scheme, as measured by the continuously increasing ratio of pensioners to contributors, will cause a significant increase in expenditure.
While this increase in expenditure is not expected to cause a decrease in the NIC’s dollar reserve during the next 20 years, the Report projects the reserve will be exhausted in 2050. With national policy making determined by short-term (5-year) political considerations, it’s hard to be confident these medium to long-term challenges faced by our country and the NIC will be addressed in a timely manner.
We have the ratios and the rationale to act. Will we wait until a crisis emerges to do so?