NEW YORK—As the world population ages and economies slow, get ready to hear another acronym—PSR. The Potential Support Ratio is the ratio of working-age people (15 to 64) to non-working-age people (65 and older). This ratio may reveal more about the overall health of an economy than the gross domestic product (GDP), unemployment rate, or other common indicators.
This demographic ratio may turn out to be far more consequential for decision-making, resource allocations, and societal well-being than other commonly utilized economic indicators. A lower PSR may signal economic stress with more elderly depending on fewer young workers to keep the economy humming.
The PSR has weighty implications for governments and businesses concerning the labor force, taxation, education, housing, production and consumption, retirement, pensions, and health services. The unprecedented shift toward a larger proportion of older persons and concomitant declines in workers is gradually and inexorably necessitating redesign of national economies.
In 1950, when world population was much younger, with a median age of 23, the global potential support ratio was about 12 people of working age per one person aged 65 years or older. Today, the world PSR has declined to eight and by the year 2050 is projected to decline to four. Although the ratios for individual countries show considerable diversity, the overall trend is both unmistakable and striking: fewer people of working age per elderly person than in the past.
