Demography and Wealth

The chart above uses data from the World Bank’s World Development Indicators, which is available up to 2012 to illustrate the relationship between demographics and income. The circles represent countries and a few have been labeled as shown. Fertility or births per woman tends to be highest in low income countries and lowest in more advanced economies. A woman in Mali or Niger can expect to have between 7 and 8 children. This number is much lower in more developed countries like South Korea and Norway, where a woman can expect to have between 1 and 2 children. The age dependency ratio is the proportion of the population that is younger than 15 or older than 64 looking to the working-age population (those ages 15-64) for support.

The dependency ratio is tilted toward the young in countries like Niger and Mali, and toward the elderly in places like Japan and South Korea. It is over 100% in Niger and close to 50% in South Korea. It could therefore be said that South Korea is enjoying a “demographic window of opportunity” as the country has more workers thanks to the demographic transition and the increased female participation in the labor force, which results from having fewer children to take care of. This increases the ability to save and parents can afford to better educate their children – so they can accumulate human capital at a faster pace.  This is evinced in higher per capita incomes shown in the chart. After the window of opportunity is over, the dependency ratio continues to increase, which implies that each person of productive age has to sustain, on average, more non-working people (most of whom are now retirees).  This constitutes an important policy challenge for developed economies, threatening the financial sustainability of social security systems in particular.