JAPAN
03 July 2014
Japan's demographic drama
Japan is undergoing a dramatic demographic transition, with a rapid aging and prospective decline of its population. What are the reasons? Does it matter? What to do?
Japan is undergoing a dramatic demographic transition, with a rapid aging and prospective decline of its population. What are the reasons? Does it matter? What to do?
All the indicators suggest that Japan's population has started declining. And that by the year 2060, it may fall to 87 million, or even 80 million according to a low fertility scenario.
Japan's population is also "aging" dramatically, meaning that the share of old persons in the population is growing. In 1995, seniors above the age of 65 accounted for 14.6% of the population. By 2013, this figure had risen to 25.1%, and it is slated to rise further to 39.9% in 2060.
The share of youth, below the age of 15, has also fallen from 15.9% in 1995 to 12.8% in 2013, and could fall further to 9.9% in 2060.
Taken together, this means that the working age population is falling from 69.5% of total in 1995 to 62.1% in 2013 and further to 50.9% in 2060. In other words, by the year 2060 each person of working age will be supporting one person of non-working age. This is an enormous "dependency ratio".
The first demographic transition transforms pre-modern societies in which both birth and death rates are high, and can substantially cancel each other out. Death rates typically drop rapidly in this first demographic transition thanks to improvements in nutrition, sanitation, education and health care. Thus, Japan's life expectancy rose from 34 in 1820 to 44 in 1900 and on to 61 in 1950.
Despite this impressive performance, in all these years Japan's life expectancy was below those of the US and Western Europe. But then Japan's life expectancy took off, such that today it is the highest in the world, at 83, with 80 for men and 87 for women. The United Nations estimates that Japan's life expectancy could be 94 by the year 2095.
The explosion the world's population over the past two centuries, from 1 billion in 1820 to some 7 billion today, was due to this first demographic transition.
The second demographic transition occurs when fertility rates fall due changes in values and the status of women, education, industrialization, urbanization and the advent of contraception. Thus, Japan's fertility rate plunged from over 4 per woman during the 1930-1950 period to around 2, where it stayed until the 1970s. It then plunged again to less than 1.5, well below the "replacement rate" of 2.1 children per woman.
Japan was ahead of other OECD advanced countries in having a low and falling fertility rate. But Japan's fertility rate, which stood at 1.4 in 2012, is not the lowest for the OECD group, as it remains above countries like Germany, Spain, Poland and Korea. But Japan since has had a low fertility rate for a long time, it is already seeing a decline in its population.
While most OECD countries now have low fertility rates, Australia, France, Norway, the Slovak Republic and the US have rates are close to 2. Some of these same advanced countries have even seen some rise in their fertility rates this past decade, a trend which is not surprising to evolutionary biologists. The idea that as we get richer we have fewer children is, from their perspective, very odd. Normally natural selection produces individuals who are good at converting their resources into lots of fertile descendants.
When compared with many other countries, the final factor contributing to the decline in Japan's population is its reluctance to accept substantial migration. Immigration has increased, and foreigners now account for 1.7% of the population, twice that of a decade ago. This figure is low compared with Western countries, especially migrant countries like Australia with 21% and even Germany with 16%. But it is higher than Korea with 1.1.
Japan's demographic drama is not completely unique. A number of other Asian countries are heading in the same direction, notably countries with low fertility rates like China (1.6), Korea (1.4), and Taiwan (1.1), which also have very low rates of immigration. Other economies which have low fertility rates are Hong Kong (1.1) and Singapore (1.3), but these two also have large foreign populations, 38.9% and 38.7% respectively.
What is unique about Japan is that it is began the demographic transitions before the other countries, and hence is ahead of them in this unfolding demographic drama.
It is indeed a problem for many reasons.
A decline in the share of the working age population means a reduction in the GDP and prosperity. And a reduction in a nation's population means a further reduction in its GDP.
A reduction in GDP not only means lower prosperity, it also means a loss in national economic power. This is very relevant to Japan, which was in 2010 eclipsed by China as the world's second biggest economy and the biggest Asian economy. Some argue that China's present feisty attitude to Japan is inspired by a perception of Japanese economic decline.
Based on current trends, it is just a matter of years before India's economy overtakes that of Japan. And within two decades, the Philippine population could over take Japan.
The second reason to be concerned is the cost of supporting an aging population. Advanced economies have, to varying degrees, promised their aging populations pension and health care benefits which are mostly not (fully) funded. This has created large government deficits and accumulated debt. It will ultimately have to be paid by the succeeding generation, who will not enjoy the same retirement benefits. These deficits and debt are a burden for the economy. They are also an inequitable intergenerational transfer.
Japan is suffering from this problem more than most countries, especially since its public debt is now over 200% of GDP. And while governments are trying to cut these retirement entitlements, Japan's large population of seniors is a political vested interest which makes reform difficult.
A third aspect of the demographic drama are the socio-economic effects of an aging population. Many believe that an aging and declining society would be less innovative and dynamic. Politically, it would be more defensive of the status quo, rather than embracing change, especially since seniors can dominate political decision-making. And an aging society would be less capable to advancing and defending its interests in international relations.
Japan's labor productivity remains low, especially in the services and agricultural sectors, compared with other OECD countries. Eliminating the weight of domestic regulations and opening the economy to international trade and investment offers great potential to improve economic performance, especially by fostering innovation and creativity.
Improving human capital can also help maintain prosperity in an ageing society. Japan ranks high in international league tables for education and skills, such as the OECD's PISA study. But human capital development is now being adversely affected by the rise in "irregular employment", since such employees are much less eligible for enterprise training, the tradition form of human capital development in Japan.
Japanese women, who stiil suffer enormously from discrimination in its male-dominated society, are a source of productive potential. Female participation in economic and political life is way behind most other developed countries, as reflected in the Global Gender Gap Index where it ranks 105th in the world, just ahead of Korea at 111th, but way behind the Philippines 5th place.
Other factors which could help tackle Japan's demographic drama are lifting its very low fertility rate and increasing immigration.
In this context, women are usually pushed to resign after their first child, and about 70% of Japanese women still do so. Many do return to the workplace, but only on "irregular" contracts. The net result is that some women choose to have a career (and perhaps not marry) rather than a family.
But it does not have to be this way. In many Western countries, women are able to combine work and family life. But this requires child care facilities and a family friendly work environment, both of which Japan lacks. Allowing the entry of more migrants who could care for children would also help. Another relevant factor is that Japanese men are the least active at home among all OECD countries, except for Korea.
Some social commentators argue that Japan is suffering from a "celibacy syndrome" or "sekkusu shinai shokogun". While many in the media debate this point, it is clear that the growing economic precarity in Japan, especially irregular work, provides a great disincentive for having a family. And perhaps the shadow of earthquakes reinforces pessimism.
A survey in 2011 found that 61% of unmarried men and 49% of women aged 18-34 were not in any kind of romantic relationship, a rise of almost 10% from five years earlier. Another study found that one-third of people under 30 had never dated at all.
The declining rate of marriage in Japan is also attributed to the reluctance of educated Japanese girls to assume all the traditional responsibilities of a Japanese wife, namely raising the family, looking after the husband, running the household and tending to inlaws. Some prefer to stay single, live with their parents and enjoy themselves.
It is also reported that the phenomenon of "hypergamy" is common, where educated Japanese girls will only marry men of equal or higher education or income status to themselves. If not, they don't get married.
Nevertheless, Japan is basically very open to skilled migrants, based on a list of skilled jobs as determined by the government. The evidence shows however that Japan has great difficulty attracting skilled migrants for many reasons. Cultural and linguistic difficulties of working in a Japanese enterprise. Challenges of living in a monocultural environment, notably access to health, education and other services, especially for a foreign family.
Japan clearly needs to unskilled migrants to fill gaps in the labor market, especially for "3-D jobs", dirty, difficult and dangerous. And there are many citizens from Japan's poorer neighbours who would be willing to migrate. But Japan has very restrictive policies for unskilled migration. Many of the growing number of migrants enter as students or trainees, or have undocumented status, and thus find themselves in vulnerable situations.
One great benefit of increased immigration would be to care for the Japan's aging population. But such care workers are not considered to be skilled migrants. A growing trend in recent years has been "marriage migration" of women from the Philippines, China and Thailand.
A final point that should be highlighted is the potential of migration as a motor of economic dynamism. As the case of Silicon Valley in the US has shown, skilled migrants, especially in the IT sector, can be dynamic entrepreneurs who create productive jobs. Japan is missing out on this potential.
In conclusion, there are many potential benefits to gained by Japan in having a more open, but well managed, migration policy. Countries like the Philippines and Indonesia, as well as South Asia, have large supplies of surplus labor which are an ideal complement to Japan's declining and rapidly aging population.
It should not therefore be forgotten that this "silver economy" can itself be a motor for economic growth. But even here a heavy regulatory burden, and restrictions on foreign investment and migration are holding back the full development of the silver economy.
It is true that a declining population reduces resources pressures on the small and resource-poor archipelago. But the reality of declining population all too often shows up in the desertion of small villages and rural areas. This involves its own costs of rehabilitating land and returning to it a natural state.
AUTHOR
John West
Executive Director
Asian Century Institute
www.asiancenturyinstitute.com
Population trends
Japan's population grew tenfold during the first 18 centuries of the common era to arrive at 31 million in the year 1820. Over the next 150 years, its population leapt to 104 million by 1970. It then crept further to 127 million, a level around which it has been stuck for at least two decades.All the indicators suggest that Japan's population has started declining. And that by the year 2060, it may fall to 87 million, or even 80 million according to a low fertility scenario.
Japan's population is also "aging" dramatically, meaning that the share of old persons in the population is growing. In 1995, seniors above the age of 65 accounted for 14.6% of the population. By 2013, this figure had risen to 25.1%, and it is slated to rise further to 39.9% in 2060.
The share of youth, below the age of 15, has also fallen from 15.9% in 1995 to 12.8% in 2013, and could fall further to 9.9% in 2060.
Taken together, this means that the working age population is falling from 69.5% of total in 1995 to 62.1% in 2013 and further to 50.9% in 2060. In other words, by the year 2060 each person of working age will be supporting one person of non-working age. This is an enormous "dependency ratio".
Japan's demographic transitions
These population trends have been driven by a number of "demographic transitions", which all countries are experiencing to different extents and with different timings.The first demographic transition transforms pre-modern societies in which both birth and death rates are high, and can substantially cancel each other out. Death rates typically drop rapidly in this first demographic transition thanks to improvements in nutrition, sanitation, education and health care. Thus, Japan's life expectancy rose from 34 in 1820 to 44 in 1900 and on to 61 in 1950.
Despite this impressive performance, in all these years Japan's life expectancy was below those of the US and Western Europe. But then Japan's life expectancy took off, such that today it is the highest in the world, at 83, with 80 for men and 87 for women. The United Nations estimates that Japan's life expectancy could be 94 by the year 2095.
The explosion the world's population over the past two centuries, from 1 billion in 1820 to some 7 billion today, was due to this first demographic transition.
The second demographic transition occurs when fertility rates fall due changes in values and the status of women, education, industrialization, urbanization and the advent of contraception. Thus, Japan's fertility rate plunged from over 4 per woman during the 1930-1950 period to around 2, where it stayed until the 1970s. It then plunged again to less than 1.5, well below the "replacement rate" of 2.1 children per woman.
Japan was ahead of other OECD advanced countries in having a low and falling fertility rate. But Japan's fertility rate, which stood at 1.4 in 2012, is not the lowest for the OECD group, as it remains above countries like Germany, Spain, Poland and Korea. But Japan since has had a low fertility rate for a long time, it is already seeing a decline in its population.
While most OECD countries now have low fertility rates, Australia, France, Norway, the Slovak Republic and the US have rates are close to 2. Some of these same advanced countries have even seen some rise in their fertility rates this past decade, a trend which is not surprising to evolutionary biologists. The idea that as we get richer we have fewer children is, from their perspective, very odd. Normally natural selection produces individuals who are good at converting their resources into lots of fertile descendants.
When compared with many other countries, the final factor contributing to the decline in Japan's population is its reluctance to accept substantial migration. Immigration has increased, and foreigners now account for 1.7% of the population, twice that of a decade ago. This figure is low compared with Western countries, especially migrant countries like Australia with 21% and even Germany with 16%. But it is higher than Korea with 1.1.
Japan's demographic drama is not completely unique. A number of other Asian countries are heading in the same direction, notably countries with low fertility rates like China (1.6), Korea (1.4), and Taiwan (1.1), which also have very low rates of immigration. Other economies which have low fertility rates are Hong Kong (1.1) and Singapore (1.3), but these two also have large foreign populations, 38.9% and 38.7% respectively.
What is unique about Japan is that it is began the demographic transitions before the other countries, and hence is ahead of them in this unfolding demographic drama.
Is it really a demographic drama?
Is it really a demographic drama? In other words, does it really matter if populations are aging and declining. After all, a higher life expectancy is obviously a cause for celebration. We are all now living longer!It is indeed a problem for many reasons.
A decline in the share of the working age population means a reduction in the GDP and prosperity. And a reduction in a nation's population means a further reduction in its GDP.
A reduction in GDP not only means lower prosperity, it also means a loss in national economic power. This is very relevant to Japan, which was in 2010 eclipsed by China as the world's second biggest economy and the biggest Asian economy. Some argue that China's present feisty attitude to Japan is inspired by a perception of Japanese economic decline.
Based on current trends, it is just a matter of years before India's economy overtakes that of Japan. And within two decades, the Philippine population could over take Japan.
The second reason to be concerned is the cost of supporting an aging population. Advanced economies have, to varying degrees, promised their aging populations pension and health care benefits which are mostly not (fully) funded. This has created large government deficits and accumulated debt. It will ultimately have to be paid by the succeeding generation, who will not enjoy the same retirement benefits. These deficits and debt are a burden for the economy. They are also an inequitable intergenerational transfer.
Japan is suffering from this problem more than most countries, especially since its public debt is now over 200% of GDP. And while governments are trying to cut these retirement entitlements, Japan's large population of seniors is a political vested interest which makes reform difficult.
A third aspect of the demographic drama are the socio-economic effects of an aging population. Many believe that an aging and declining society would be less innovative and dynamic. Politically, it would be more defensive of the status quo, rather than embracing change, especially since seniors can dominate political decision-making. And an aging society would be less capable to advancing and defending its interests in international relations.
Tackling the demographic drama
There is much that Japan could do tackle its demographic drama.Japan's labor productivity remains low, especially in the services and agricultural sectors, compared with other OECD countries. Eliminating the weight of domestic regulations and opening the economy to international trade and investment offers great potential to improve economic performance, especially by fostering innovation and creativity.
Improving human capital can also help maintain prosperity in an ageing society. Japan ranks high in international league tables for education and skills, such as the OECD's PISA study. But human capital development is now being adversely affected by the rise in "irregular employment", since such employees are much less eligible for enterprise training, the tradition form of human capital development in Japan.
Japanese women, who stiil suffer enormously from discrimination in its male-dominated society, are a source of productive potential. Female participation in economic and political life is way behind most other developed countries, as reflected in the Global Gender Gap Index where it ranks 105th in the world, just ahead of Korea at 111th, but way behind the Philippines 5th place.
Other factors which could help tackle Japan's demographic drama are lifting its very low fertility rate and increasing immigration.
Why is Japan's fertility rate so low?
A major reason why Japan's fertility rate is so low is that as Japanese women have become more educated, they are also more interested in working, but the Japanese work environment is not very compatible with raising a family. Private and public sector careers in Japan usually involve recruitment from university, in-house training, regular job and location rotation, lifetime employment, seniority-based pay and long overtime hours.In this context, women are usually pushed to resign after their first child, and about 70% of Japanese women still do so. Many do return to the workplace, but only on "irregular" contracts. The net result is that some women choose to have a career (and perhaps not marry) rather than a family.
But it does not have to be this way. In many Western countries, women are able to combine work and family life. But this requires child care facilities and a family friendly work environment, both of which Japan lacks. Allowing the entry of more migrants who could care for children would also help. Another relevant factor is that Japanese men are the least active at home among all OECD countries, except for Korea.
Some social commentators argue that Japan is suffering from a "celibacy syndrome" or "sekkusu shinai shokogun". While many in the media debate this point, it is clear that the growing economic precarity in Japan, especially irregular work, provides a great disincentive for having a family. And perhaps the shadow of earthquakes reinforces pessimism.
A survey in 2011 found that 61% of unmarried men and 49% of women aged 18-34 were not in any kind of romantic relationship, a rise of almost 10% from five years earlier. Another study found that one-third of people under 30 had never dated at all.
The declining rate of marriage in Japan is also attributed to the reluctance of educated Japanese girls to assume all the traditional responsibilities of a Japanese wife, namely raising the family, looking after the husband, running the household and tending to inlaws. Some prefer to stay single, live with their parents and enjoy themselves.
It is also reported that the phenomenon of "hypergamy" is common, where educated Japanese girls will only marry men of equal or higher education or income status to themselves. If not, they don't get married.
Why is immigration so low?
Japan has always had a very restrictive approach to migration, as it wishes to maintain its cultural uniqueness. And it is true that large scale immigration from its high population neighbouring countries could have a massive impact on Japanese society. The result is that Japan has a very low level of immigrants, about 1.7% of the total population.Nevertheless, Japan is basically very open to skilled migrants, based on a list of skilled jobs as determined by the government. The evidence shows however that Japan has great difficulty attracting skilled migrants for many reasons. Cultural and linguistic difficulties of working in a Japanese enterprise. Challenges of living in a monocultural environment, notably access to health, education and other services, especially for a foreign family.
Japan clearly needs to unskilled migrants to fill gaps in the labor market, especially for "3-D jobs", dirty, difficult and dangerous. And there are many citizens from Japan's poorer neighbours who would be willing to migrate. But Japan has very restrictive policies for unskilled migration. Many of the growing number of migrants enter as students or trainees, or have undocumented status, and thus find themselves in vulnerable situations.
One great benefit of increased immigration would be to care for the Japan's aging population. But such care workers are not considered to be skilled migrants. A growing trend in recent years has been "marriage migration" of women from the Philippines, China and Thailand.
A final point that should be highlighted is the potential of migration as a motor of economic dynamism. As the case of Silicon Valley in the US has shown, skilled migrants, especially in the IT sector, can be dynamic entrepreneurs who create productive jobs. Japan is missing out on this potential.
In conclusion, there are many potential benefits to gained by Japan in having a more open, but well managed, migration policy. Countries like the Philippines and Indonesia, as well as South Asia, have large supplies of surplus labor which are an ideal complement to Japan's declining and rapidly aging population.
Japan's silver economy
Japan's senior population is growing, it is prosperous and has time on its hands. It thus represents an enormous market for silver goods and services. This includes leisure items, tourism, healthcare, medical devices, adapted household appliances and financial and insurance products.It should not therefore be forgotten that this "silver economy" can itself be a motor for economic growth. But even here a heavy regulatory burden, and restrictions on foreign investment and migration are holding back the full development of the silver economy.
Environmental benefits of a declining population
When asked the question, many Japanese will express approval of the prospective decline of their population. They find Tokyo, Osaka and other large Japanese cities just too crowded.It is true that a declining population reduces resources pressures on the small and resource-poor archipelago. But the reality of declining population all too often shows up in the desertion of small villages and rural areas. This involves its own costs of rehabilitating land and returning to it a natural state.
Population update
Japan’s population declined by the most on record in 2013. The population fell by 244,000, according to Health Ministry estimates released on January 1, a seventh straight year of decline. Births fell about 6,000 from a year earlier to 1,031,000 and deaths increased about 19,000 to 1,275,000.AUTHOR
John West
Executive Director
Asian Century Institute
www.asiancenturyinstitute.com
REFERENCES:
- The World Economy: a millennial perspective, by Angus Maddison. OECD Development Centre Studies.- Population Projections for Japan (January 2012) -- 2011-2060
- Can we be sure the world's population will stop rising? by Richard Knight. 13 October 2012. BBC News.
- Why have young people in Japan stopped having sex? by Abigail Haworth. The Observer, Sunday 20 October 2013.
- The Economic Factors for the Declining Birthrate by Naohiro Yashiro. Review of Population and Social Policy. No. 7, 1998, 129-144.