Keating: Dependency, Income and Labor-Force Participation

August 21, 2015

by Maryann O. Keating, Ph.D.

In a debate between Republican presidential candidates, Bobby Jindal referred to those in the cart versus those pulling the cart. The extent to which some are willing and able to assume responsibilities affects families, neighborhoods and towns. For better or worse, taxable income continues as a priority for government officials responsible for balancing their budgets.

We prefer that children and the severely limited remain sanguine with respect to their dependency. On the other hand, those responsible, including the elderly and infirm, are challenged by comments on the need to be productive. It is, therefore, extremely important not to equate pulling the cart with earning a paycheck. Although Gross Domestic Product (GDP) and tax-revenue figures fail to recognize it, raising children, caring for the needs of oneself and family members, maintaining a household and making sure bills are paid represent significant contributions to national productivity and well-being.

A crude measure used to estimate economic burden is the dependency ratio. The age-dependency rate is the ratio of dependents — people younger than 15 or older than 64 — to the working-age population. This ratio is sometimes presented for each country as the number of dependents (children and elderly combined) per 100 working-age persons. Higher ratios indicate potentially higher rates of dependency. In 2014, numbers range from 102 for Uganda to 37 in China. The rates for Singapore, the United States, Mexico, the United Kingdom and Japan are 36, 51, 53, 55 and 63 respectively. How these rates are interpreted as being desirable or otherwise is of major significance. Here, we assume that both longer life expectancy and children contribute to increasing our present and future quality of life.

Nevertheless, it is interesting to see how dependency rates translate into total national income divided by total population. The World Bank reports that 2014 GDP per capita (in current U.S. dollars) was $677 in Uganda and $7,594 in China. For Singapore, the United States, Mexico, the United Kingdom and Japan, per capita income was $56,287, $54,630, $10,361, $46,603 and $36,194 respectively. Dependency rates do not tell the whole story about living standards around the world but admittedly are a contributing factor.

In a free society, it is not expected that every working age person (ages 15-64) be willing to hold a job, but economic growth and well-being depend on a critical number doing so. Presently, about 48 percent of the total U.S. population of 322 million hold a job or are seeking employment. For most families around the world, a decent standard of living depends on wage income; it is therefore of paramount importance that one or more family members be willing and able to seek, obtain and hold a job or be self-employed. Likewise, in passing the torch onto a new generation, a nation relies on tax revenue generated in productive employment to provide security and infrastructure, and to honor its commitments.

The share of Americans at least 16 years old who are either employed or actively looking for work has dipped to a 38-year low of 62.6 percent. In June, 640,000 individuals exited the labor market. More troubling is the declining participation rate of prime-age workers between 25 and 54 years old (Andrew Soergel, U.S. News and World Report, July 16, 2015). In Indiana, presently, job holders as a percentage of the population is well below that attained in 2000.

So be it, if this decline represents personal choice or affluence. If the goal, however, is to increase the total number voluntarily and productively employed, we must figure out a way to make it more profitable for firms to hire workers, or permit each employee to earn and take home more of his or her earnings — or both.

A young colleague once asked either seriously or in jest, “Why is it that your child seems to have more social and political importance than my dog?” Perhaps in later life he came to realize that a pet, however wonderful, could not provide the full range of services needed when persons were unavailable or unwilling to pull that cart.

Maryann O. Keating, Ph.D., a resident of South Bend and an adjunct scholar of the Indiana Policy Review Foundation, is co-author of “Microeconomics for Public Managers,” Wiley/Blackwell, 2009.

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