Japan’s population has been declining since 2008. By 2050, not only Japan but populations in over 55 – mostly high-income – countries are expected to fall. As shrinking populations are commonly linked to a smaller labour force and a slowing economy, many governments, such as the Japanese one, see this trend as a dire problem that needs to be addressed. But does it really have to be? Or could this be an opportunity to create a more sustainable and stable economy?
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In an emotional speech on December 4, 2023, North Korean leader Kim Jong Un urged women in the country to produce more babies as he expressed concerns about the declining birth-rate, which would impact the country’s national power. Similarly, in July, the Japanese government disclosed “alarming” statistics related to the country’s birth rates, indicating that up to 42% of Japanese women born in 2005 could remain childless. In 2022, only 770,747 babies were born in the country.
This trend of falling birth-rates and declining populations is not unique to North-Korea or Japan: projections by the UN indicate that many high-income nations will face population decline in the near future. Two-thirds of the global population is living in a country where the fertility rate is below the 2.1 threshold necessary to maintain population stability. And around 2100, fertility rates are expected to dip below 2.1 in all countries around the world, except twelve.
Japan and many other countries facing population decline see these demographic projections as concerning trends that require urgent action. But why exactly are they so afraid of population decline, what are they doing about it, and is population decline really a cause worth fighting for?
Japan’s Demographic Situation
The primary driver behind Japan’s population decline is urbanisation, which commonly suppresses birth rates. Urban areas in Japan, but also in many parts of Europe and America, are characterised by a range of factors that discourage child-rearing, including demanding work hours, high living costs, and limited childcare options. Women living in cities often perceive a strong trade-off between building a career and raising a family. Especially in Japan, which ranks as the world’s third-most expensive nation in the world to raise children (after China and South Korea), couples tend to opt for their careers, rather than building a family.
As a result, Japan’s population has been steadily decreasing and ageing since 2008. Here are some statistics :
- The UN forecasts that Japan’s total population could plummet to 104.9 million by 2050, possibly even as low as 87 million by 2060;
- Japan’s fertility rate is plummeting and currently stands at 1.37;
- The elderly population is large and growing:
- Japan holds the world’s second-highest median age (after Monaco) at 49 years;
- Japan has the world’s highest life expectancy – 87 years for women and 81 years for men;
- Nearly one-third of the population (29.8%) is aged 65 or older, accounting for 36.5 million people;
- 15% are over 75 years old (19.37 million people);
- 10% is over 80;
- 92,139 people – more than 1 in 1,500 individuals – is over 100 years old;
- By 2060, 39.9% of the population is projected to be aged 65 and older, signifying an increase of 10 million elderly citizens;
- The working-age population (15-64 years old) diminished by 296,000 to 74.2 million in 2022, constituting 59.4% of the total population, with a projection to decrease further to 47.95 million by 2060 (see figure 1);
- The old-age dependency ratio – the number of retired people relative to the working-age population – is the highest in the world: 48.6 seniors for every 100 working adults, which is projected to surge to 79/100 in 2050 (see figure 1).
Various economists link a dwindling population to a shrinking economy and slowing economic growth, pointing to the imbalanced old-age dependency ratio visible in many countries around the world. Indeed, a shrinking population with more elderly and a smaller labour force can put pressure on a country’s social security system: a smaller workforce means less income tax revenue, while public expenditure for health care, elderly care and pensions rises, alongside the need for health care workers.
The root cause of the imbalanced old-age dependency ratio is the global baby boom of the 1950s. The many babies that were born during that time are now leaving the workforce and retiring. Yet, in 2060, when the majority of the baby boom generation has passed on, the imbalance is expected to even out, as shown in Figure 1 in the case of Japan.
Hence, the issue is not itself the small size of the population: small countries with small populations such as the Netherlands and Switzerland are both in the top 20 wealthiest economies in the world.
The key concern lies in the transition itself.
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Japan’s Population Policies
To address its demographic challenges, the Japanese government has unveiled a slew of natalist policies under the Children’s Future Strategy Policy, which aims to stabilize the population at around 100 million by 2060. For this, Japanese Prime Minister Fumio Kishida has earmarked 3.5 trillion yen (US$23.7 billion) annually over the next three to five years, which would double childcare spending by early 2030.
The plan consists of three pillars:
- Monetary assistance: Offering higher, broader, and longer child allowances without income cap, childbirth grants of up to 500,000 yen (around US$3,300) and extra subsidies for larger families. Since April 2023, financial support is also offered for higher education, postnatal necessities (such as strollers, diapers, and formula), and medical care for children with disabilities.
- Childcare services: Establishing more (after-school) childcare centres, such as day-care, prenatal centres and preschool education, providing temporary childcare, student care, post-partum care and services for sick children.
- Cultural reforms: Urging companies to reform the workplace and improve the work-life balance by promoting shorter workweeks and higher wages, limiting overtime working possibilities, changing gendered parenting roles, and providing more generous parental leave policies.
So far, Japan’s initiatives to curb the population decline have largely failed, mainly due to the absence of a much-needed cultural change. For instance, despite parental leave policies being in place, unwritten social rules press employees – particularly fathers – not to take leave for fears of losing their job. Likewise, despite the offered financial support, many young women find the heavy burden placed on mothers to look after the children and be in charge of the household less appealing, now that more women in Japan are enjoying higher education and have more job opportunities at their disposal.
Moreover, despite both the number of day-care centres and children enrolled having increased since 2000, there is still an acute shortage of childcare services in urban areas and the number of children on waiting lists has increased.
It is predicted that in just eight years’ time, the number of women of childbearing age will fall to a point where Japan’s population decline becomes irreversible, and it seems unlikely that the Japanese government will be able to create the required complex cultural change within that time span. In addition, with one of the highest public debts in the world (226% of GDP), the Japanese government is struggling to secure sufficient funds for its plans. Therefore, additional solutions are needed to address the imbalanced old-age dependency ratio.
Alternative Solutions
There are five other strategies that could be applied in countries facing a shrinking workforce and growing elderly population such as Japan:
1. Raising the retirement age
A practical strategy entails raising the retirement age to 67 (or above), an effective measure already adopted by countries like Greece, Denmark, the Netherlands, Iceland, Israel, and Italy. In Japan, companies can individually set retirement ages between 60 and 70, one in four companies have opted for a retirement age of 65. Since April 2023, the public pension age for Japanese civil servants has been raised from 60 to 61 and will be further raised by one year on a bi-annual basis until it reaches 65 in 2031. The private sector is expected to take similar measures to address labour shortages.
2. Including elderly in the workforce
Allowing elderly to (voluntarily) re-enter the labour force, for instance on a part-time basis, could help boost the workforce numbers. Japan currently has the highest number of seniors working past the retirement age in the world after South Korea: more than half (50.4%) of individuals aged 65-69 are still employed, while nearly 40% of Japanese companies hire people over 70. Including elderly in the workforce could not only alleviate the financial burden of social security but it can also foster seniors’ well-being by combating loneliness and enhancing vitality, ultimately reducing healthcare and elderly care expenses.
3. Enhancing female participation in the workforce and improving gender equality
Presently, 54% of Japanese women are economically active, slightly surpassing the global average of 50.8%. However, a significant portion of these women (over 50%) hold non-regular, part-time positions due to reasons such as post-childbirth career hiatuses or the need to balance work with household responsibilities. Implementing binding policies for companies to hire a minimum percentage of women and offer them full-time contracts could not only bolster tax revenue but could also boost the average GDP.
4. Health and elderly care innovation and robotisation
Innovation and robotisation in health- and elderly care could reduce costs and present a solution to the shortage of healthcare workers. With 62 commercially available types of humanoid robots already in use, the Japanese government has allocated approximately US$440 million from 2020-2025 for further development of the robotics industry. New digital technologies such as AI, could also increase the productivity per worker, particularly in a country like Japan, which lags in labour productivity. This, in turn, could help mitigate labour shortages in vital sectors like healthcare and elderly care.
5. Expanding immigration
While Japan’s strict immigration policies have historically deterred this approach – only 2.4% of the nation’s population is non-Japanese (2.99 million people) – recent efforts to ease immigration procedures to address chronic labour shortages show promise. However, Japan’s attractiveness to skilled foreign workers remains a question due to factors such as low and stagnant wages, a burdensome tax regime, and a rigorous work culture
Embracing Population Decline: Quality Above Quantity
If socio-economic challenges caused by population decline can be solved, could population decline and economic prosperity coexist?
Economic growth is not solely dependent on population growth but on a combination of factors including technological advancement, education, innovation, and efficient resource utilisation meaning that, as long as governments and businesses are considerably investing in the other factors, there can still be economic growth.
In fact, scarcity of human resources naturally incentivises companies to innovate and automate to increase productivity and efficiency. Countries like Finland and Sweden, both of which are experiencing declining populations, have managed to maintain strong economies by prioritising education, research & development (R&S), and innovation. What’s more, the economy of the world’s second-most populated country – China – is projected to grow by 5.2% in 2023 and 4.5% in 2024 despite experiencing a population decline in 2022. And even Japan’s economy is still expected to slightly grow in the coming years despite the rapidly declining and ageing population.
While economic growth might be smaller with a declining population, it is considered to be more stable and sustainable compared to economic growth caused by rapid population growth. While this is good news, it still requires redefining the concept of economic growth: one that takes into account happiness, health, and sustainability, not only prosperity expressed in terms of money.
Hence, a shrinking population does not necessarily spell doom for economic growth. It is not the size of the population but the quality of its contributions that truly drive sustained economic advancement. Investing in education, R&D, and innovation, and allowing more elderly, women, migrants, and even robots in the workforce are viable and sustainable solutions that can mitigate the adverse effects commonly associated with an imbalanced old-age dependency ratio.
It is important to see declining populations in developed countries for what they are: inevitable, temporary demographic transitions that incentives countries to update their traditional socio-economic systems to a modern model that was long overdue. As such, it should be seen as an opportunity, rather than an economic crisis. In any case, pushing women to make more babies does not seem like the way to go.
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