Ageing trends in Japan (and why it affects us)

Ageing trends in Japan (and why it affects us)

Japan is a country that is ageing at a rate faster than almost any other country in the world.  This will have a number of drastic changes in Japanese society.  However, we would be wise to pay attention because the changes taking place in Japan will affect the rest of the world eventually

“…more than 20% are over the age of 65 today. In 1989, only 11.6% of the population was 65 years or older, but projections were that 25.6% would be in that age category by 2030. However, those estimates are updated at 23.1% (as of February 2011) are already 65 and over, and 11.4% are 75 and over…”  (Information is from Wikipedia)

Some projections state that, by the year 2050, about 35.7% of Japan’s population will be over 65.  In 2050 the child population, meaning those who are 15 and under, will drop to approximately 10.8% (down from 13% today).  Taken together, this means that in 2050 there will be approximately 3.5 elderly Japanese for every child.  It is unlikely that the human race has ever experienced such a top heavy population pyramid.

The reasons for this are attributed to increased life expectancy and low fertility.  In addition, it should be pointed out that Japan has one of the lowest levels of immigration in the world and remains one of the most homogeneous societies on Earth.  It has been said that the population growth and relative youth of both Canada and the United States have been due to relatively high levels of immigration, coupled with successful integration of immigrants.

The effect that this will have on Japan is profound.  The dependency ratio, meaning the number of dependents (children and elderly) compared to the working population aged 16 to 64, will be approximately 0.86.  The ratio of working population to seniors will be approximately 1.5.  This will put stress on retirement plans as well as health care.  The increasing proportion of elderly people also had a major impact on government spending. Millions of dollars are saved every year on education and on health care and welfare for children. As recently as the early-1970s, social expenditures amounted to only about 6% of Japan's national income. In 1992 that portion of the national budget was 18%, and it was expected that by 2025, 27% of national income would be spent on social welfare (Wikipedia).  As a contrast, the military budget of Japan has been about 6.5% over the past few decades. 

To further illustrate the effects of how an ageing population would effect Japan, a study by the UN Population Division released in 2000 found that Japan would need to raise its retirement age to 77 or admit 1 million immigrants annually between 2000 and 2050 to maintain its worker-to-retiree ratio.
In addition to the dependency ratio, there would be other effects to Japanese society. Along side increased government spending on health care and pensions, those in retirement tend to pay lower income taxes because they are not working.  This would further decrease government revenues in Japan at a time when the debt to GDP ratio (as of 2013) is 228%.  Those in work may have to pay higher taxes. This could create disincentives to work and disincentives for firms to invest, causing a fall in productivity and growth.
An ageing population would lead to a shortage of workers which would drive up wages and potentially increase inflation.  Sectors that would be growth sectors would be medical devices, retirement homes, and pharmaceuticals. 

In addition to economics, the ageing population will have an effect on foreign policy.  Having an ageing population would make it more difficult to recruit soldiers for the armed forces.  Europe and Russia have had challenges meeting recruiting goals for their militaries.  However, some argue that this can be offset by improvements in military technology.  An unprotected country is vulnerable to aggressive neighbors.  Some have argued however that an ageing population would lead to a less aggressive foreign policy since older populations are less likely to rely on armed conflict to settle disputes.

In conclusion, the ageing of Japan will have a great impact on their society.  However, Japan was selected for the topic of this essay because they are at the forefront of global ageing.  Countries in Europe, North America, Asia, and the Middle East can all expect a variation of these effects on their societies as time moves on. 

(photo by dantada on Morguefile)