Aging Population in Japan.

The Aging Population Crisis in the Land of Rising Sun.

The world population reached 8 billion in November 2022, causing global economic and environmental concerns. While a declining birth rate might seem to be the solution, the inverted age structure (the elderly outnumber the youths) may have negative consequences. Questions arise regarding taxation, healthcare, caregiving, and retirement options for the elderly population in an aging world.

The growing elderly population poses an economic challenge to several countries around the globe, especially Japan. The Japanese population is graying, with over 1 in 10 people aged 80 and above, and nearly 30% of its population is over 65. With ever-shrinking population growth, can this island nation manage the aging population dilemma to save its future workforce?

Causes for the demographic shift.

The demographic shift and the persistent shrinkage in population can be attributed to plummeting birth rates and rising life expectancy. Japan has one of the lowest fertility rates globally, with only a 1.3 birth rate per woman on average, significantly lower than the required 2.07 rate to sustain a stable population. The crude birth rate (annual no. of live births occurring per 1000 people) has reached the lowest value in recent years, standing at 6.6. The decline in marriage rates is one of the reasons behind low birth rates. The persistence of traditional household gender roles, which heavily lay the responsibility of parenting on women, has also contributed to lessening the appeal of marriage among young women. The skyrocketing costs of living, poor work-life balance and toxic work culture, and increased women’s employment rate have majorly impacted the fall in marriage rates and childbirth.

 [ Birth rate per 1000 population in Japan. Source: Statista]

Moreover, the average life expectancy now stands at 84 years, and this trend is rising as birth rates continue to decline. Enhanced nutrition, innovative medical and pharmaceutical advances, and improved standard of living have all contributed to increasing age longevity in Japan.

[ Share of the population in Japan. Source: Statista]

Due to Japan being a largely homogeneous nation, the immigration, cultural assimilation, and integration of immigrants into mainstream Japanese society have been comparatively limited. Approximately 2.76 million foreign nationals, or 2.2% of the total population, were registered as residents of Japan in 2021. The country’s immigration rate is low compared to other advanced nations due to the country’s strict immigration policies. 

With the inverted age pyramid, the old age dependency ratio rises steadily. As per the World Bank data, the ratio reached 51% in 2022, implying that there are 51 senior citizens for every 100 adults (15-64 years). These statistics accentuate the magnitude of the demographic issue and looming workforce shortage, which may hinder economic growth in the future.

[ Old age dependency ratio in Japan. Source: The World Bank]

Consequences of the aging population in Japan- an economic perspective

The demographic shift and rise in the elderly populace have tremendously affected the country. 

A steady growth in the workforce is necessary to sustain any economy. The sharp decline in fertility implies that fewer young Japanese adults are predicted to enter the workforce to replace those who will retire. Consequently, this has led to reduced output growth and productivity. Despite being one of the world’s largest and most developed economies, the country struggles to accelerate its GDP growth rate, with just a 1.96% rise in 2023. 

In 2021, Japan’s national debt was estimated to be worth approximately 9.51 trillion USD, with forecasts indicating national debt to increase even more. Japan currently ranks first globally in terms of debt-to-GDP ratio. Due to the aging population, the government has to spend more on healthcare to meet the increasing demand. The rising public debt thus poses a fiscal challenge for the Japanese government to allot budgetary spending on the healthcare and pension system.

The declining birth rates persistent for decades have led to schools shutting down in some rural regions of the country. Between 2002 and 2020, nearly 8500 schools have shut down in the country.  

Japanese Government Initiatives 

Japan has tried several strategies related to child-rearing in the past, however they turned out to be unsuccessful. Japan introduced the Guideline of Measures for Aging Society in 2018 to encourage older people to stay in the workforce. In 2022, nearly half of the Japanese firms employed older workers aged over 70. The global trend indicates that 35% of companies prioritize workers aged over 55, as per the World Economic Forum reports. The continued employment of older people in the labor market has kept the workforce relatively stable. The Japanese government is encouraging self-medication, home-based treatments, and remote patient monitoring to tackle the country’s healthcare issues. While testing the carebots for the elderly, Japan realised that automation is not the best solution, highlighting the need for a more efficient healthcare system. Although Japan seems to be promoting foreign migrants, their migration policies still remain stringent and taxing. 

Conclusion

Ultimately, it should be noted that the implications of an aging society on the economy are both nuanced and widespread. The high public debt issue is amplified by the rapidly dwindling and aging Japanese society has limited the government’s flexibility, necessitating policy adjustments to restore economic stability. Relaxed and active immigration policies and incentives to foreign migrants may alleviate the shortage of labour force and offset the adverse demographics. Furthermore, the use of advanced technology such as A.I and automated robots may help fill the gaps created by labour shortage. Innovation is required in healthcare and other services to cater the needs of the elderly individuals. The government and the policymakers must implement innovative strategies and reforms to abate the burden of the country’s greying population.

                            Credits-Anushka Surve

                                          (SYBA)