Thursday, December 22, 2005

Japan's Population Shrinks

Because of a plummeting birth rate (down nearly 4% in 2005 alone to 1,067,000) and a rising number of deaths as the population rapidly ages, Japan's population is expected to shrink this year for the first time ever during the time there have been official population statistics in Japan. Earlier forecasters thought the year when the number of deaths would surpass the number of births would be next year, but as the birth rate have fallen faster than expected it seems to happen already this year. And as the number of women in fertile age will fall rapidly in the coming years while the number of old people rises, the rate of population decline is likely to accelarate even if the fertility rate do not fall further.

One implication of this is that the relative importance of Japan in the world economy is likely to fall as a falling population level all other things being equal will slow GDP growth.

However, a smaller population need not lower GDP per capita as the lower GDP will have to be shared by fewer people. But as this population decline is accompanied by a aging population structure with more and more people leaving the work force to retire, the aging of the population structure will lower GDP per capita.

For GDP per capita -and government pension systems- it is far less of a problem if a low birth rate is associated with direct population decline due to a low life expectancy, like in Russia, than if it is associated with a rising number of old age retirees like in Japan, Germany and Italy.

This however presupposes that the average retirement age will not rise along with the median age.

And Japan have actually been better at keeping old people in the work force than many European countries with similar demographic structures like Germany and Italy. One sign of this better attitude towards making old people work is revealed in how statistics Japan defines "working age population". Whereas in the west it is defined as the population aged 20 to 64 or 18 to 64 or even 15 to 64, in Japan it is defined as the population aged 15 or older, with no upper age limit. In Japan it seems, old people are considered potential workers, something which in turn means that Japan won't have as great problems with the country's aging demographic structure as for example Italy will.


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