Demographics and Population Projections of Japan



 

INTRODUCTION

 

Japan gets special consideration because it is further along the demographics declining population curve than any other large country. Unless there are major changes in healthcare technology, immigration, public policy, and birth rates, all other industrialized countries will follow Japan down the path of declining and aging populations, and smaller labor forces. 

 

PROJECTIONS

 

Japan’s current (2024) population is around 122 million people. This is the 15th year of population decline, down from a high of 128 million. The yearly decreases so far have been small, both in numbers and as a percent of the total. This is expected to continue until 2030. Then population decreases are expected to accelerate to a population of 104 million in 2050 and 87 million in 2070. At the end of the century, Japan’s population is projected to be 60-65 million people, about half its current size.

 

The high dependency ratio (the number of elderly divided by the number in working age groups – 46%, the highest in the world) is expected to rise to about 70% in 2050, about 75% in 2070 and about 80% in 2100. Not everyone in the working age group is in the labor force. Thus, by 2100, there will be almost one Japanese over 65 for every employee in the labor force. Government budgets will find it increasingly difficult to raise tax revenue to meet the rising social costs of an aging society. 

 

Figures are from The Economist, “Japan’s economic troubles offer a glimpse of a sobering future,” December 5, 2019.

 

Japan has one of the lowest birth rates in the world at 1.2 in 2023. Japan also has the world's oldest population, both as measured as average age and with the highest percent of residents over 65. In 2023, the number of deaths was twice the number of births.

 

LABOR FORCE AND FUTURE ECONOMIC GROWTH

 

Over the past 20 years, Japan’s working-age population has declined by more than 10 million workers, about 14% of the workforce. The current labor force (age group 15-64) is 73 million. From 2030 to 2050, the labor force is expected to fall by 15 million and then by another 10 million in the next 20 years. In 2100, the labor force age group is expected to be about 32 million, about 40 million less than the current size. As early as 2060, over 40% of the adults will be over 65.

 

Current statistics from Japan’s Internal Affairs Ministry, July 24, 2024.


Projections from:

Statistica, ”Forecast of the total population in Japan from 2023 to 2120,” November, 2023. https://www.statista.com/statistics/607427/japan-forecast-total-population/


Statistica, “Forecast of the total population in Japan from 2023 to 2120, by age group,” November 2023. https://www.statista.com/statistics/612575/japan-population-age-group/

 

Japan admits few immigrant workers to increase its labor force but the yearly number has been rising, up to 330,000 in 2023. Over 3% of its labor force are foreigners. Most are on short-term or work visas (Japan calls them "trainees") and are not expected to stay. Japan rejects 99% of applications for asylum. Under current law, it is very difficult for immigrants to become citizens or permanent residents.

 

In Japan, the labor force and the population are decreasing at about 1% per year. Productivity is increasing at about 1.3% per year, giving economic growth of 0.3% per year. But because of decreasing population, output per person is increasing at about 1.3% per year, or about the same as in the U.S. Growth rates are much lower but the increase in output per person is about the same. This may be one reason there is very little call for any economic, political or social reform in Japan despite almost no economic growth. And this has been going on since the 1990s.

 

Japan’s real GDP has been basically stagnant over the last 25 years. Without structural changes to Japan’s political and economic system, Japan’s real GDP in the future will grow slowly at best and eventually decline along with its labor force and population.

 

As the size of the labor force decreases at a higher rate, and faster than the older age group, it is likely that output per capita will start to decrease.

 

THE STRUCTURE OF THE JAPANESE LABOR MARKET

 

The number of employed Japanese has not fallen as much as the decrease in the number of people in the prime labor force age groups. Until recently, this has been due to the increased participation rates of women in the labor force. But the high current female participation rate suggests little if any increase in workers from this past trend.

 

While female employment rates are high, over 50% of female employees hold part-time positions as seasonal or temporary workers. This means they are not covered under lifetime employment or job security guarantees. Many full-time female workers are classified as temporary to avoid giving them lifetime employment protection. As a group, female workers are probably underemployed.

 

Japan’s retirement age is 60, although older workers can request to work until they are 65. Many retired Japanese buy or work in small, local businesses such as noodle shops, small grocery stores or other kinds of small stores to supplement public or private pensions.

 

Over 1/3 of the total foreign workers are from Vietnam, China or the Philippines. They tend to work in manufacturing or construction. There is a lack of Korean workers. Japan is now attempting to attract foreign employees with technical skills or higher education.

 

About half of employees are between 45 and 54 years old. This indicates that about half of Japan’s current labor force could retire in the next 20 years.

 

Japan’s unemployment rate is low, between 2% and 3%. There is much discussion about companies finding it hard to hire as many employees as they would like. Government ministries are concerned about a national labor shortage that can only get worse. This would probably contribute to low economic growth in the future.

 

A peculiarity about the Japanese labor market. The definition of unemployed is more restrictive than in other countries. No one knows what the unemployment rate would be if Japan used the American definition.

 

The low unemployment rate, a slight decrease in the number of employed Japanese and the labor shortage, combined with higher inflation rates, are putting pressure on wage rates. In 2023, the average wage increase was around 5%, which is high for Japan. Wage increases might continue.

 

The overall impression is that the Japanese labor market is not very flexible and that workers tend to be less mobile than they might be under different rules and regulations. This may also be obstacle to raising labor productivity and a barrier to higher economic growth in the future. 

 

JAPAN AS A MODEL – OLD AND RICH

 

Japan might serve as a model for future demographics of other countries in two different ways. One is as a model for countries with a high per capita income. The other is for countries that have a lower, often much lower, per capita income but are aging rapidly. This includes China and most of the countries of east and southeast Asia. They will grow old before they grow rich.

 

Most of the countries in east Asia, including China, have a birthrate equal to or lower than Japan's. They are on a similar demographic curve, only a little behind. The difference is that Japan is much richer, with a substantially higher income per capita. If managed right, Japan has the resources to pay for adequate levels of support for its increasing numbers of senior citizens. The other countries will age before they achieve per capita incomes anywhere near Japan. This will probably put a greater strain on their public finances and they will not be able to provide adequate health and services support for their aging populations.

 

In economic theory, debt-financed government spending is expected to make up for weak private consumption and domestic investment spending to ward off deflation and recession. In the future environment, however, demographics can overcome aggressive monetary and fiscal policy to stimulate economic growth. These policies have already failed in Japan. Zero interest rates on public debt, large budget deficits, high levels of government infrastructure spending and the highest national debt/GDP ratio in the world have not improved very low economic growth.

 

The large budget deficits are financed by borrowing much of the country’s household savings at near zero interest rates. Japan’s central bank has just raised its equivalent to the Fed funds rate to 0.25%. Other central bankers are not impressed.

 

There is no chance of balanced budgets in the future. A rise in interest rates would make Japan’s financial problems worse.

 

Domestic demand is weak even though unemployment is low. Rather than raise wages, Japanese companies export manufacturing to other countries, especially China and other Asian countries. The is accompanied by substantial investment outside of Japan.

 

Japanese companies are starting to substitute robotics for workers in Japan. Japan expects to greatly increase its use of robots., partly in health care services.

 

An aging population contributes to social and political resistance to structural reforms. The dominant political party substitutes government spending and subsidies, combined with appeals to Japanese traditions, for reforms that might threaten social stability.

 

All of this is before the economic costs of climate change and global warming. Japan in the past has suffered from devastating earthquakes. A recent tsunami destroyed a nuclear power complex.

 

HOW JAPAN IS DEALING WITH DECLINING LABOR FORCE

 

Japan is admitting foreign workers to increase its labor force. There are now about 3.3 million foreign workers, about 3% of the labor force. Foreign workers, as in Saudi Arabia, the United Arab Emirates and Singapore, are mostly segregated from the locals. Immigrant workers have no citizenship rights and can be deported at any time.

 

If Japan makes up the decrease in the size of its labor force with foreign workers, then by 2100 foreigners will make up about half of Japan’s workers.

 

Japan is a major producer of robots but the number of robots as a percent of employed workers is below China and South Korea but above other industrialized countries. This percentage (robots per 1,000 workers) is expected to rise. Japan is using some of its robots to provide services and companionship for senior citizens.

 

CONSEQUENCES OF JAPAN’S DEMOGRAPHIC DECLINE

 

Small number of children

 

The projection for Japan is that in 2100 there will be five times as many senior citizens over 65 then children aged 0-14. Children will make up less than 10% of the total population. No one seems to be thinking about the social and psychological consequences of this trend. Importing children for adoption? Surrogate mothers from other countries? Robotic pets and children as substitutes?

 

Continued cultural isolation?

 

Japan has been the most successful country in segregating its culture and moral values from outside influence, first as an island closed to outside influences (1600-1850s) and even now in the global communication world. Despite surface similarities to other modern economies and cultures, Japan remains opaque to outsiders. This might make it difficult to attract permanent immigrants and integrate them into Japanese society. 

 

More outmigration of Japanese?

 

As the dependency ratio increases, putting a larger tax burden on working Japanese, it is possible that more Japanese will emigrate. One way might be to work for the overseas operations of Japanese corporations. Or join the Japanese communities in other countries such as Brazil or the United States. Or imitate the strategies of wealthy Chinese who are planning to leave their country. This will further decrease the number of births, the size of the labor force and the tax base.

 

Family vs. state care of the aged

 

With more Japanese not having children, the cultural imperative of children supporting elderly parents will be impossible to fulfill for many families, putting more of the burden on the state.

 

Part of the global economy

 

It is hard to see what future role Japan will play in the global economy besides as a source of financial capital. Japan might be relatively less important in the future. Already, Japan is not particularly innovative. The country is not a leader in most new tech industries – mostly robotics companies, a few pharmaceutical companies, some legacy technology in consumer electronics. Japan has already outsourced much of its manufacturing to other Asian countries, particularly China.


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For a post on the future Demographics, Immigration and Economic Growth of the United States, see

https://bennettgreenberg.blogspot.com/2024/08/demographics-of-japan.html



 


 


  

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