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The Japanese Economy - Aging Population

The Aging Population in Japan and its Impact

Rapid fertility decline aided by mortality decline has caused the proportion of the Japanese population aged 65 and over to increase from 4.9% in 1950 to 9.0% in 1980. A population projection based on the 1975 population census assumes a recovery of fertility from a total fertility rate (TFR) of 1.9 in 1976 to 2.16 in 1980 and a gradual decline to 2.1 by 1987, while an alternative projection assumes a continuing fertility decline to a TFR of 1.65 in 2025. According to these assumptions, in 2025 18.12% to 21.29% of the total population would be aged 65 or over and 38.66% to 43.80% of the working age population would be aged 45-64.

Population changes are transmitted to economic variables through the supply of labor, level of savings, public health care plans, and old-age pension schemes.

Regardless of the population projection and production function used, the growth of the economy is likely to slow to 1 or 0% in the beginning of the next century due to decreased growth of the labor force and a change in its quality due to age-compositional variations. Public health insurance schemes and pension plans will require increasing financial resources as a result of accelerated population aging; depending on the choice of benefit levels, the proportion of national income allocated to them is expected to range from 14%-40% in the year 2010. Per capita gross national product will continue to grow despite decreased economic growth, but savings might be adversely affected if the provision of social insurance benefits continued to increase monotonically. Possible palliative measures would be to change present employment practices or to upgrade the quality of the labor force through vocational training programs for older workers.

Economic implications of Japan's aging population: a macro-economic demographic modeling approach.

Japan is facing an unprecedented challenge. With its low birth rate, the population has been shrinking since 2010. Japanese people are one of the longest-lived in the world and the population is greying very quickly. No less than 38% of Japanese will be aged 65 and over by 2065, making it the world’s leading “super-aged society.” But while this development has profound implications for economic growth, it also represents a massive opportunity for innovation based on high-quality data and medical research.

Forbes

Over the next four decades the share of the population aged 65 years and older will rise from its current three-in-ten persons to almost four-in-ten persons. This will depress growth and productivity due to a shrinking and aging labor force and a shift toward consumption, while fiscal challenges will magnify with rising age-related government spending and a shrinking tax base.

A solid plan for fiscal consolidation over the medium and long term is needed to address Japan’s demographic challenges and lessen debt sustainability risks.  The planned increase in the consumption tax rate in 2019 will bring much-needed revenue. However, a concrete strategy is needed to stabilize and reduce the large public debt, over the medium and long-term—particularly given an aging population, labor force decline, and rising expenditures for healthcare and other social security programs. 

IMF