Japan Undergoing Population Onus
May 31, 2017
Mr. Takao Komine
Professor,
Department of Reginal Development,
Taisho University
Today let me talk about population issues in Japan summarized in five points.
Firstly, the most critical issue that will impact the Japanese society and economy in the long run is how to deal with growing “population onus”. It is a phase when the working-age population dramatically drops while the aged population expands. A population pyramid takes a shape of an equilateral triangle when a population is increasing. As the birthrate declines, the base of the pyramid starts to narrow while the ratio of working people to the population rises for a while. This phase is called “population bonus” but it does not continue indefinitely and is eventually succeeded by the phase of “population onus”. I must say majority of socio-economic challenges that arise are triggered by “population onus”. Such issues include declining labor force population and consequent constraints on economic growth, falling savings ratio that can restrict new investments, increasing ratio of retirees that will overburden the pay-as-you-go pension and health-care systems, and increasing ratio of elderly voters to affect future directions of political and social decision-making. The burden of population onus is significantly greater in Japan than in other countries, thus any countermeasures we are to take can set examples for others to follow.
The second point I want to highlight is that the government target of maintaining the “nation’s population at 100 million” is too ambitious. This figure translates into raising the “total fertility rate to 1.8 by 2020 and further to 2.07 by 2040”. 2.07 equals to the replacement-level fertility rate needed to prevent a population from shrinking. The fertility rate in Japan has declined, due to an increase in the unmarried population and a decrease in the number of children in families. I must say it is impossible to maintain the Japanese population at 100 million unless we tap into foreign manpower.
The third point is we must “reform our work style” to overcome the adverse impact of population onus. Our real GDP increased by 4.6% from 2013 to 2016, while there was 0.5% decrease in our working-age population. These figures are misleading as we may think our productivity increased by 5.1%. We must note that the labor population actually increased as much as 1.4% during the same period, majority of whom are relatively low-paid female and elderly non-regular workers who supplement labor shortage caused by declining working-age population. Unfortunately, it is not a sustainable solution and we will be urged to improve productivity of individual workers sooner or later. We must make revolutionary changes to our conventional business practices of long-term employment and seniority-based wages. By introducing a more flexible system of remunerating workers on the basis of their job content, we can achieve “equal pay for equal work” and rectify the unreasonable gap in the treatment of regular and non-regular workers. Labor mobility will be improved and it can have a positive impact on the overall economy and productivity. This “job-based” appraisal system can also increase the female employment rate, as they can be entitled to the same amount of salary when they return to the same job after childrearing. Women can satisfy both career goals and childrearing, making Japan a more gender-equal country.
The fourth point is that various socioeconomic issues will surface from 2025 when the first baby-boomer generation will become the late-stage elderly (aged 75 or over). According to the Population Projections of Japan released by the National Institute of Population and Social Security Research this April, the ratio of late-stage elderly in the total population is projected to rise from 12.8% in 2015 to 17.8% in 2025, with the number jumping from 16.3 million to 21.8 million. As the number of pension premium payers is projected to decline, the old-aged dependency ratio will rise, overstretch the social security budget and trigger an excessive fiscal burden. We have an even more alarming projection for 2050, when the second baby-boomer generation will reach age 75 and come to account for 23.7% of the total population. We must therefore embark on a long-term reform to prepare for the year 2050.
The last point is on regional issues. The government claims that “we can reverse the birth rate decline by rectifying the overconcentration of population in Tokyo”. But I must say its logical formula is uncertain. Majority of arguments center on Tokyo’s lowest birth rate, resulting from high percentage of unmarried people, while they tend to overlook the fact that the number of marriages per population is the highest in Tokyo. These figures show that Tokyo functions as a match-making place for young people, who later move out to neighboring prefectures where the living condition and prices are better. My research group concluded that Tokyo actually contributes to lower the birth rate by providing a place for young people to get married and start a family. We also calculated that even if people move from Tokyo to other regions, it will make a very small difference to the overall birthrate. Suppose 1 million people move from Tokyo where the birthrate is 1.1 to a prefecture having a higher birthrate of 1.6, it pushes the birthrate up by merely 0.005.
Let me highlight the need for our government to allocate more funds on countermeasures for the declining birthrate. In Japan, a large proportion of social security spending is targeted to the elderly, while family-related expenditure remains moderate, only half the level of France, the U.K. and Sweden where the birthrate has recovered. We must note that there is ample room for improvement in implementing various measures to tackle the declining birthrate.