A shrinking dependency ratio

By Liam Day
October 31st, 2007

But fewer younger, healthier people are joining the state’s workforce to defray the costs incurred by the older, sicker population.

Thus spake the Boston Globe this morning and their assessment is correct. The Commonwealth’s population is stagnant. We are losing young workers even as we gain dependents. Their focus, however, is another matter.

We must begin with the fundamental question, which in this case is: Why are so many young workers leaving the state? The easiest answer to that question is the high cost of living. And, yes, double digit increases in health insurance premiums are part of the problem. Its crux, however, is not health insurance; it’s housing. We should be focused on ways to reduce the cost of housing in Massachusetts. Only in that way will we be able to entice the young and the healthy to stay here.

Which brings me to the title of my post this morning. What is a dependency ratio? It’s simply the ratio between the number of people in a given pool who are of working age and those who are not - children and the elderly. A dependency ratio can be calculated for a country, a company or, in this case, a Commonwealth. Last year in the New Yorker, Malcolm Gladwell explored the implications of dependency ratios for companies such as Bethlehem Steel and GM. Despite enormous increases in productivity - GM makes more cars today with 1/3 the workforce than it did at its supposed height in the early 60s - GM is being eaten alive by its dependency ratio. The lessons for the economy of a state whose dependency ratio is fast approaching GM’s are not happy ones. We need to sit up and take notice before we become GM to North Carolina’s or Texas’ Toyota.