Albert Tsui - Economic-Demographic Dependency Ratio in a Life Cycle Model

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Melbourne Institute Seminar Series

Title: Economic-Demographic Dependency Ratio in a Life Cycle Model

Abstract:  The conventional dependency ratio based on cohort-invariant cutoff points could severely overstate the true burden of population aging, especially when its pace is rapid. We propose a modified definition of dependency ratio, which is based on cohort-varying years of schooling and retirement age in a life-cycle model. We compare the proposed economic-demographic dependency ratio (EDDR) with the conventional dependency ratio, and find that the conventional dependency ratio of the United States is projected to increase by 0.105 from 2010 to 2060, which is an over- projection of 86% when compared to the projected increase of 0.015 in the EDDR over the same period. Sensitivity analysis suggests that our finding is quite robust to reasonable changes in parameter values (except for one parameter), and the magnitude of over-projection ranges mainly from 0.079 to 0.102 (i.e., 75% to 97%). We follow the well-established Lee-Carter model to forecast stochastic mortality, and employ the method of expanding duration to decompose the sources of over-projection of the conventional dependency ratio.

Presenter: Albert Tsui, National University of Singapore

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