Workers, workers’ productivity and the dependency ratio in Germany: analysis with implications for social policy

Retirement is an inevitable rite of passage. Retirees draw income from savings, pensions, and perhaps benefits from state welfare systems. Their economically productive years behind them, older workers become an important component in an interesting social indicator—the dependency ratio, (D _r). The D _r measures not only the social significance the elderly have in society, but also the potential economic burden placed on productive workers. Problems may arise that ratchet up the dependency ratio and create important policy dilemmas. In Germany, a larger and increasing D _r points toward future social problems. The dependency ratio is an aggregate measure that masks a considerable amount of variation. Two issues related to the dependency ratio have not been addressed at length. The dependency ratio is related to the labor force via the denominator; it might be important to recognize that certain segments of the labor force are disproportionately burdened. Identifying those segments of workers can better inform decision makers about what policies to implement in addressing the dilemmas reflected in a high dependency ratio. The dependency ratio is also related to worker productivity—the greater the worker productivity, the less of an issue is the dependency ratio, regardless of its size. At bottom, the issue is whether those in the labor force are able to support the retired population. This paper examines the relationships between workers, productivity, and the dependency ratio. It concludes by providing some policy recommendations.