When to Worry About Grandma

The IMF tells us that, “Aging is the real population bomb.”

While the world’s population is growing more slowly, the number of old people is soaring. To take care of the elderly, we need more babies that become the workers that support a dependent population. As you can see, we won’t have those babies:

Europe’s Aging Population

While the European Union can expect its elderly population share will grow by 2100, the very old will be the big problem. Like the world (right side, shown above), in Europe many more of us will have lived beyond 85 years. For the EU, shown below by the light orange rectangle, the 85 and above share is projected at a whopping 10 percent by 2100. At the same time, the working population share (20-64 years old), will shrink:

Two problems are the expense and the care. We have to worry about the expense because most European pension systems are pay-as-you go. With pay-as-you-go, the taxes paid by current workers go to current recipients. Expense will be a concern as the number of workers per pension recipient descends from 2.7 in 2022 to 1.5 in 2100.

Then, as for care, more older people, especially women, will experience severe activity limitations:

Our Bottom Line: Dependency Ratios

As economists, we use dependency ratios to quantify the impact of an aging population. A dependency ratio can focus on the aged or on the aged and the young (below 20).

When we calculate an old-age dependency ratio, the number of people aged 65 and more is our numerator while the working age population aged 20 to 64 is our denominator. In the EU, two years ago, it was a manageable 36 percent.

In 2022, Finland had the highest ratio and Luxembourg, the lowest:

At this point, we can say the news is good and bad. Yes, we are living longer and healthier. However, unless we have sufficient economic growth, our labor force will have to transfer more of their earnings to those who will be dependent for many years.

Returning to our title, they will have Grandma to worry about.

My sources and more: With Bruegel my go-to for EU issues, they did not let me down. They had the excellent aging paper. From there, the ideal complement, the IMF looked at the world.