Population Aging and the Economy of Japan

1
Population Aging and the Economy of Japan

• Yuko Teramae
• Will Higgins

2
Changing Age Structure

• By 2050, 50 of the population will be age 53 or
  older

3
Changing Age Structure

• Life expectancy has risen significantly.
• By 2025, Japan will have the highest dependency
  ratio of any major industrial country.

4
Changing Age Structure

• The shape of the population pyramid is changing
  dramatically.

5
Changing Age Structure

• Fertility Decline
• Japans TFR has steadily declined from 4.5 in 1947
  to 1.3 in 2000.
• With the TFR well below replacement, the
  population will decline.
• Year TFR
• 1947 4.50
• 1960 2.10
• 1970 1.42
• 2000 1.37

6
Changing Age Structure

• Increased Longevity
• Improvements in healthcare
• Rapid rise in per capita income
• Japan has the highest life expectancy of any
  major industrial country.

7
Changing Societal Norms

• Women are getting married later.
• Education has raised the opportunity cost of
  having children.

8
Consequences of Population Aging

• Slow Economic Growth
• Lower household saving rate
• Labor force contraction
• Heavy financial burden on younger generations

9
Slow Economic Growth

• Since the mid-1970s, GDP growth rates have been
  declining.
• From 1991-2000, the average annual GDP/capita
  growth rate fell by .5.
• Real GDP is projected to fall by 20 over the
  next 100 years.

10
Decrease in Household Saving Rate

• Elderly dissave to finance retirement.
• As the proportion of elderly increases, net
  savings will decline.

11
Labor Force Contraction

• From 2010-2020, the labor force growth rate is
  projected to fall by .5 per year.
• Changing age structure will lead to a smaller
  working age population.
• Labor force participation
• rates and hours worked
• per month are declining.

12
Financial Burden on the Younger Generations

• The working age population must finance the
  retirement of a much larger generation.
• The high dependency ratio in Japan, plus generous
  pension benefits, make the current social
  security system untenable.

13
Solutions to the Aging Population Problem

• Reduce the budget deficit
• Broaden tax base
• Cut public spending (investment, benefit
  payments)
• Increase Total Factor Productivity
• Immigration is not a feasible solution.

14
References

• Horlacher, David E. and F. Landis Mac Kellar,
  (2003), "Population Ageing in Japan Policy
  Lessons for South-East Asia", Asia Pacific
  Development Journal, vol. 10, no. 1, (June 2003),
  pp. 97-122.
• Muhleisen, Martin Faruqee, Hamid (2001), "Japan
  Population Aging and the Fiscal Challenge",
  Finance and Development, v38, n1 (March 2001)
  10-13.
• Yashiro, Naohiro (1997), "Aging of the Population
  in Japan and Its Implications to the Other Asian
  Countries", Journal of Asian Economics, v8, n2
  (Summer 1997) 245-261.
• Kosai, Yutaka Jun Saito Naohiro Yoshiro,
  (1998), "Declining Population And Sustained
  Economic Growth Can They Coexist?", American
  Economic Review, Vol. 88, No. 2, May, pp.
  412-416.