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The Bright Side of Japan’s Aging Population

The announcement that Japan’s population fell by about a quarter of a million in 2013 brings up another round of discussion on Japan’s gloomy future. The common, if not widely-agreed, response to Japan’s aging population is that the shrinking population leads to less tax revenue from workers and higher healthcare bills for the elderly, both of which are burdens of the economy. For fear of the same issue, even China is adopting a less strict one-child policy. Nonetheless, according to The New Scientist, there’s a flip side of the story to show that it isn’t all bad news.

It looks like Japan’s economy has been growing at a slower rate than other rich economies. But if we look at per capita figures, Japan’s individual incomes are rising faster than those of U.S. and France, thanks to smaller population. Does it follow that the Japanese are actually better off? Let’s look at some other measures. According to Nicholas Eberstadt, a demographer at American Enterprise Institute, Japanese are the healthiest, with an average lifespan of 83 years. With a universal health care system, they surprisingly spend only 8 percent of their GDP on health care, half of what U.S. spends percentage-wise. As for education, having fewer children means less spending on education, which is probably not a small number considering Japan’s strong schooling system. Eberstadt also points out a number of indirect benefits like more living space and more arable land per person, which translate to a better quality of life for the Japanese. Because keep in mind that Japan is a small country with only 145,883 sq mi of land, but populated with 127 millions of people.

Japan is not the only country facing demographic contraction. Admittedly there’re a number of problems that follows the aging population issue, but “others believe that peak population is a necessary first step to reducing our assault on the planet’s life-support systems”. Japan sets a good first example.

source: CNN World, The New Scientist


  1. We’ll examine the retiree vs worker issue in class today and periodically the remainder of the term. So let’s look back a few classes: how might population decline facilitate / make more difficult productivity improvements? As a devil’s advocate (or at least I hope I’m wrong), this will accelerate the depreciation of housing and retail space, with a consequent shift towards newer and better. However, for any change that requires new investment – and can we think of anything that doesn’t? – you on general principles will face a stagnant market. So the only way to take advantage of productivity and grow is to eat into the market share of rivals – you can’t grow simply by maintaining market share. My sense it that this will slow growth in a number of areas. There’s also the excess capacity issue: productivity comes from shifting resources from industry A to industry B. That’s easier if the capacity in A continues to have value. But what you have are firms who can’t sell off (or allow to decline) their existing businesses. With fewer people there are fewer retail clusters, and so you can’t find someone to sell off your spot in an old cluster to let you move to a new one. And of course all this makes it harder to shake off deflation, and so you are needing to invest for a shrinking absolute market that also has declining prices. Again, the pressure will be to not invest.

    That shows up in the auto industry: in their heyday, suppliers faced booming demand for widgets, and could hire engineers and invest in new production machinery. But for those that did not aggressively expand outside of Japan, well, their market is now shrinking and they will strain to invest enough to keep in the game. Furthermore, in their heyday they were slow to open up (like, not at all). Now where will they get engineers? – the number of college graduates in technical fields is falling, and they are attracted to finance and other jobs that have greater prestige. If they operate outside Japan, they can add engineers there – but without hiring of fresh blood back in Japan, and without a headquarters using English….

    So again, I hope I’m wrong, I think the biggest side effect of population decline will not be the fiscal one but the impact on productivity.

  2. kuveke kuveke

    Traditional theories of population growth’s effect on GDP hold that GDP should fall with population growth for many of the reasons that the professor suggests above. On the flip side in a globalized market the losses to consumption in retail may be able to be offset especially as online shopping grows in new ways. Negative population growth has been a worry of economists for decades and helps reinforce the public’s image of economics as the gloomy science. However, people are industrious and are able to come up with creative solutions to seemingly insurmountable problems. One of the things we should also do is speculate on the ways in which population decline will benefit the economy.

    • “…economists for decades…” is misleading – very little was written on population decline before the mid-2000s. In contrast, there’s a long tradition (e.g., Malthus in 1798) that population growth causes problems.

      But look at the Solow model: a declining population does NOT imply falling per worker ouput.

  3. gjeong gjeong

    One of the policies that Abe has been trying to push was strengthening weakening the yen (Known as ABENOMICS. This led to good sales (esp. auto industry) in the U.S.However, it is time to face the consequences: strong currency led to too high inflation. Abe only wanted 2~3% inflation increase but it went too high. There are also other negative impacts and we will see how Japan will respond.

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