Dependency Ratios

Malcolm Gladwell has a typically concise popular summary of a complicated problem. This time, it's dependency ratios, which measure the extent to which a working population has to support a nonworking population. A company that has a lot of retirees receiving pensions relative to its active working population, is likely to struggle. Gladwell is particularly interested in Ireland, where the ratio has been falling. And Ireland's economy is booming.

As the Irish example demonstrates, dependency ratios get measured geographically as well as institutionally. I looked around briefly for a quick summary or analysis of dependency ratios in Pittsburgh, but I couldn't put my hands on anything. You guys with the data -- Chris? Amos? -- if Malcolm Gladwell looked at the past and future of dependency ratios in Pittsburgh, would they tell him, or you, anything interesting?

Update: Per Amos's suggestion, I linked to the Celter Tiger image from Wikipedia (after looking at the copyright info linked to the image!).

Comments

14 Responses to "Dependency Ratios"

globalburgh said... 8/26/2006 8:08 PM

Chris blogged about the state of city pensions recently, which include a few comments on dependency ratios:

"One factoid that puts this in perspective. As of Jan 1, 2005, city police had 804 current employees, but over 1,663 retirees receiving benefits. At more than 2 retirees per current worker, I challenge anyone to find such a screwey ratio in any other large public retirement system in the country. That ratio has probably increased given the additional retirements, and minimal hiring, since 1/1/05."

Sic semper ero debitum - part II

Concerning the article and the coming problem in China, immigration was not considered. The reason the United States is not greying as fast as Western Europe is thanks to greater immigration.

"Of course, you can’t take the populations of different countries and different cultures and simply merge them, no matter how much demographic sense that might make."

Ah, but you can steal another country's young independents.

C. Briem said... 8/27/2006 10:07 PM

that article confounds two rather different issues.. dependency ratios and their impact on society are one thing, but the legal or contractual structures that allowed pension plans to be underfunded are a distinct issue. my opinion of course. but that is a huge topic.

the age trends could be quantified in many ways without much problem.. but interpreting them is another issue. One quick but crucial thought is that 'dependency' as viewed 50+ years ago is not the same as dependency today for a lot of reasons.. For an overview of that point, I like Clarke Thomas' recent column in the PG a few weeks ago Old and in the way? No way!:

http://www.post-gazette.com/pg/06218/711269-108.stm

but on the celtic tiger. While Mike was away I promised a few postings from an EU conference I was at on the topic of how regions respond to globalization. One of the best presenters there was Professor Frances Ruane from Trinity College on the topic of the causes and myths of the Irish economic expansion. I may have to make good on that promise. But here is one teaser, was it a celtic tiger or a celtic tigress that boosted the Irish economy?.... female labor force participaiton trends in Ireland look remarkably like those in Pittsburgh.

Amos_thePokerCat said... 8/28/2006 10:11 AM

Wikipedia has a interesting entry for Celtic Tiger. If nothing else, you could always use the emerald striped tiger graphic in your blog posting. I am sure there are no copyright issues with it, since it is in Wikipedia. *cough* *cough*

Gladwell is an entertaining author, but he tends to go "a bridge too far" in his articles. In this article, as c. briem pointed out, Gladwell conflated dependency ratios with pension funding. Gladwell was also taken to task about this on his blog entries, Dependency Ratios, and Risk Pool. One blogger called this "the worst Gladwell piece ever." I guess that got his attention. I particularly like this critic's phrase, "Gloriously, he ends on something as mad as a box of mittens". I can not find the NPR show where both Gladwell and Olivia Mitchell, Executive Director of the Pension Research Council at the Wharton School are interviewed.

There are a number of economic papers correlating dependency ratios with economic growth. One frequently cited is [Kögel2001] "Youth dependency and total factor
productivity"
. The only paper I could find about dependency ratios and MSAs was by an assistant prof from Dartmouth, Aggregate Evidence on the Link Between Demographics and Productivity. Unforunately, economists seem only interesting in running the correlation, but not enumerating the list of historic dependency ratios for US MSAs.

John Morris said... 8/29/2006 1:13 AM

Funny that one brings up Ireland!! The history of Ireland is also the history of the vast irish Diaspora. Anyone with a calculator that knew thew the size of that diaspora and it's wealth and skills could see the kind of potential that would emerge if it could get a fraction of those people back.

Any chance Pittsburgh could do that????

Amos_thePokerCat said... 8/30/2006 1:00 AM

no.

Amos_thePokerCat said... 8/30/2006 1:34 AM

Actually, I meant the emerald tiger for c. breim's upcoming chart of female labor force participaiton trends in Ireland, and PIT. But hey, one never gets tired of seeing a cartoon green tiger. I bet the people that don't read the comments, have absolutely no idea how that tiger relates to Gladwell.

Dennis Roddy said... 8/30/2006 4:20 PM

A few stray observations here about Tigers, Celtic and otherwise, from one who has spent enough time in Ireland to form an opinion.

John Morris is quite right in noting that many Irish returned home during the boom times, notably construction workers who often worked away from home during lean years in Ireland, then returned home as pensioners. Population, I would posit, is the prime ingredient for economic expansion, messy as it becomes, and those returnees -- not always with a job in hand -- spurred new business creation.

A few things went into the Irish economic boom that ought to be noted:

1. Ireland has a disproportionately high literacy level compared to many other nations, even within the EU. As such, it was a natural for American firms to export their paperwork tasks in ways you might not have guessed. If you've ever filled out an insurance claims form, there's a sizeable chance the paperwork was processed in the free trade zone around Shannon Airport, where it had been overnighted for less expensive outsource work, then flown back to New York, Boston or Newark.

2. Nobody has yet ventured a thought about how, in a country with national health insurance, companies face a softer blow in terms of health insurance costs. Yes, it's passed along through taxes, but those are distributed across the population, making a startup less onerous for an entrepreneur.

3. Don't underestimate the amount of outside subvention (ie subsidization) of Ireland by the European Union. It entered the game as one of the union's poorest members and, as such, enjoyed health subsidies for all manner of infrastructure, notably roads and economic development. Half of the road signs I saw on my visits there in 1990 and 1992 were at road construction sites, declaring "A Project of the European Economic Community." When they're paying to build your roads, you have more money left for other things and your state budget is going to look a lot healthier to potential investors.

4. I have no statistical proof of this, but my impression is that Ireland's population is younger on average than that in the U.S. and a younger population means a more productive workforce.

John Morris said... 8/30/2006 5:32 PM

I grew up in an old Irish Neighborhood in Queens NY and my impression from there was that a tidal wave of young people went back and these were some very high skill types. In the late 80's through the mid 1990's there were a lot of new irish bars and clubs in NY, buzzing with insanely overqualified and talented irish hipsters. Then, it was like in one year you had this "where is everybody? " effect. They all went back. They loved Ireland and the minute it seemed realistic they went back.

The other big trend that is happening in Ireland, is the emergence of the borderless person who goes back and forth.

I agree that The Irish boom was subsidized heavily.

C. Briem said... 8/31/2006 9:33 PM

I really do need to start a blog-thread on this.. but I will leave a few stray thoughts. One point is that Ireland is not that big (pop 4 mil) so some small changes in investment flows could make a big difference. Clearly the EU subsidies into the Irish economy were a help, but far from the whole story. That is not to deny that the Germans feel they bankrolled the Irish expansion, but that is another story. Then there is the issue of taxation and the relatively low tax rates put in place decades ago that many think really induced that investment that eventually came. but the biggest thing that gets overlooked, consider that Ireland was and is the only native English speaking euro zone country, something that helps with foreign direct investment to large measure. So to those who think Pittsburgh can somehow follow the Irish model for economic growth, its just hard to see what a US region could do to replicate such policies. I have this image in my head of some local politician proposing that we adopt the dollar as our currency here as a policy to induce more investment.. It's not inconceivable around here, but let me definitively say it would not help.

The fact that Ireland had a large body of skilled workers that it could draw upon quickly in ways other countries can't was certainly a enabling factor.. but the reverse migration was more effect than cause. What it really meant was that Ireland did not wind up pulling in non-native immigrants in the way other European countires have over the decades when faced with labor shortages.

C. Briem said... 8/31/2006 9:47 PM

and this is an entire field unto itself.. while I understand the logic DR just propounded about how national health insurance should help startups.. and indeed it might... whatever else is going on between Europe and the US is more than offsetting any such advantage. I am not sure anyone thinks there is a European advantage in entrepreneurial activity. We are always talking to Europeans on the topic of how they can emulate the US in this regard. In the Irish case.. some of the biggest things that drove the Irish economy in the 1990's were big investments by firms like Apple, Intel, IBM, etc over there, not really endogenous economic startups.

John Morris said... 9/01/2006 12:20 AM

I am not saying that there are tons of parallels between Pittsburgh and Ireland's situations, but there are important ones. The small population of Ireland relative to it's huge diaspora is similar to Pittsburghs situation. Also, Ireland played on a cost advantage, which Pittsburgh should also have ( but seems to be squandering. ) The huge romantic pull that Ireland has on it's diaspora looks a lot like the steeler nation thing to me. Anybody who left Bradock would understand what happened during the Potato famine.

Also, what are the figures in terms of people buying second houses and people retiring there? My impression is that is a big thing affecting rural Ireland.

I might be stepping into this one but, I think the boom also had a lot to do with the weakening of church power there. A lot of young people used to leave Ireland for personal freedom.

C. Briem said... 9/01/2006 9:03 AM

There is a myth (many myths?) about Braddock.. Most outmigration from Braddock happened long ago, not during or since steel's collapse. Those workers moved while they had good paying jobs which allowed them to move into bigger homes elsewhere, not becasue of bad conditions aka the potato famine. again, another topic.

its really hard to say an international migration flow has any comparison to what is happening within a nation. People who move from Pittsburgh to Washington, DC feel pretty much at home there after not so long.

There is no real evidence that out-migration from Ireland was any higher than it should have been given the relative economic conditions there versus elsewhere. Remember we are talking about what was one of the poorest areas in Europe for decades. If there was larger migration into the US it was because of an Irish community here that welcomed them and facilitated those moves.

that there is a community-changing level of growth in rural Ireland is clear.. as often happens with rapid growth. I was shocked at the proliferation of roundabounts that had cropped up around Galway and environs, where my own relatives are, even by the mid 1990's.

Amos_thePokerCat said... 9/01/2006 11:32 AM

JM is flogging the "boomarang" idea. The problem is no matter what the cause was, the effect was a boom in jobs in Ireland. That is what drew people back. Until there is a boom in jobs here, I would not be expecting to see a surplus of UHaul trailers.

jM, As to the Braddock analogy, have you been in Braddock lately? If at all? While it might make for some strange artsy photographs, it strikes me as what Beruit, or Bosnia looks like with all the decrepit bombed out looking buildings. How much did the too tall bald white mayor pay for his home/warehouse/loft? $2k? $5k?

Anecdotally, I ran into some Irish when I had an assignment in Munich, a couple years after the wall came down. It seemed the Irish diaspora was while fairly young, it was mostly male. Especially, the construction guys left their families back in Ireland, while they worked in Germany. There might be a few people that have the arrangement here in PIT. Generally, in the US, people pack up the whole family and leave for a new city. Even for blue collar construction type jobs, rather than commuting, and the extra real estate expense. Also, almost to a man, none of the Irish liked having to work in Germany, at all. Much more than just a soccer/football thing.

John Morris said... 9/01/2006 11:38 PM

I stand corrected on the Braddock history. What you say fits my theory that a lot of the outmigration from the steel towns happened before the mills closed. That's the impression one get's from the fact that Pittsburgh's peak urban population number came around 1950 and was declining even as the mills chugged on.

As far as Amos's comment-- It's very true that a lot of thing have to done to make the region more attractive for investment and jobs. The huge Diaspora, just gives one a clue to the kind of explosive energy could be unleashed by good policies. I think a lot of Irish people sort of were watching the country out of the corner of thier eye for some plausible excuse to return.

Search Pittsblog

About Pittsblog

Pittsblog 2.0 is written by Mike Madison, a law professor at the University of Pittsburgh. Send email to michael.j.madison[at]gmail.com. Mike also blogs at Madisonian.net, on law and technology. Chris Briem of Null Space drops by from time to time.

All opinions expressed at Pittsblog 2.0 are those of their respective authors and of no one (and no thing) else, least of all the University of Pittsburgh.

Pittsblog 2.0 has a motto: "It's steel good in Pittsburgh." Say it aloud, with a Pittsburgh accent.

Comments are moderated.
Subscribe to Pittsblog comments

Socialize



Blog Archive

Header Background

Header background images licensed from (left image) lemonad and (right image) plaskota under Creative Commons Attribution - Noncommercial - Share Alike 2.0 Generic licenses.

Credits

Copyright 2003-2010 Michael J. Madison - WP Theme by Brian Gardner - Blogger Blog Templates, ThemeLib.com