28
Population Aging
Japan, the school-age population is 10 percent of the working-age population, so each potential secondary student can rely on 10 workers to finance their education; in Nicaragua, potential students can rely on only 4 workers. The effect of demography on determining the effort of financing education, pensions, or health care is measured by the “support ratio”—the ratio of the population of beneficiaries to the workingage population. Policy determines the “generosity” of the benefits that each society decides to assign to the potential beneficiaries of education, pensions, and health care. The Benefit Generosity Ratio (BGR) is the relative cost of benefits per person at risk (for example, potential pensioner or potential student). For example, the BGR for secondary education is the total spending on secondary education divided by the population aged 12 to 17. The BGR is measured in relation to the average productivity of the working-age population; it measures spending per person at the appropriate age for consuming education, health care, or pension benefits as a fraction of the average worker’s productivity. Using these concepts, the authors analyze data for 10 LAC countries and offer the following important insights. Comparing education spending in LAC and the OECD, on average both groups of countries assign about 5 percent of GDP to educating the next generation. A closer inspection using the framework shows that this seemingly similar allocation implies vastly different levels of generosity due to the significantly higher proportions of children that exist in most LAC countries. The student-age population in LAC is about two-thirds the size of the working-age population, while in the OECD countries it is only about two-fifths. In terms of generosity, this implies that OECD secondary education spending per youth is about twice as high as it is in LAC.18 Within LAC there are significant differences that are often not appreciated. Comparing LAC countries that spend similar amounts of GDP on education—say Brazil and Nicaragua at about 5 percent of GDP or Peru and Uruguay at about 3 percent—the model makes clear that because there are higher school dependency rates in Nicaragua and Peru, the same investment in education implies significantly lower generosity in spending per student. Brazil and Mexico spend about twice as much per student as Peru does (as a proportion of GDP per worker). Comparing pensions spending, there is a large variation between the LAC average of about 5 percent of GDP and the OECD average of about 8 percent of GDP. The OECD has a much higher population of people over age 65 in relation to the working-age population than LAC, so