Japan's population is aging and declining. Two main forces are responsible: declining fertility rates and lengthening life spans:
1. Fewer babies. A total fertility rate of 2.1 would keep a population stable, assuming no migration. Japan hit this level in 1960, falling persistently below since 1975. The total fertility rate reached a low of 1.26 in 2005.
Japan's fertility decline is surprising given that the number of children wished for by married women has been remarkably constant, at about 2.2, for the last 30 years across age groups. However, women are marrying at later ages, delaying having children once married and never marrying at all in greater numbers. Since almost all babies in Japan are born within marriage, the combination of delay and not marrying combine to reduce fertility.
2. Longer lives. Japanese women attained the longest life expectancy among 228 countries in 1982, according to World Bank data, and have held that position to now. A baby girl in Japan in 2008 could expect to live to 86. Male counterparts achieved the longest life distinction in 1974 and can now expect to live to 79.
Higher life expectancy does not mean longer periods of frailty and sickness; it seems to be caused by the delay of physical decline. People are reaching older age in better condition than before. Once senescence does set in, physical and mental decline proceed at the same rate as in the past, only later.
Demographers describe a health-survival paradox: Men seem to be healthier than women, but they die younger. Females seem to be better able to survive with poor health. Women represent 86% of Japanese over 100. In 2007, there were more than 32,000 centenarians; by 2030 the projection is 10 times larger. The policy consequence is that the increasing numbers of surviving women will enjoy a period of vigorous old age, followed by a time of frail health requiring assistance and medical care.
Smaller workforce. Japan's population peaked in 2004 at 127.8 million. Current projections expect the rate of decline to accelerate to 1% annually by 2050. The workforce hit its high in 1999 and is now already 2.5% smaller.
A smaller workforce and an aging population imply that the ratio of workers to non-workers will fall. The conventionally measured dependence ratio--the number of workers that must cover the dependent population of young and retired--compares the number of people in the 15-64 year old age group to all others. The fertility collapse and aging have pushed the ratio down to 1.8 this year, with a projected ratio of one worker per dependent after 2050. Were this to happen, the consequences for taxes, transfers and incentives could be enormous.
Inaccuracies. However, the 15-64 age group describing the nominal workforce is suspect; it gives no weight to schooling beyond early high school and does not consider the possibility of working beyond 64.
The declining actual dependency ratio tracks the extension of schooling throughout the 20th century:
--Education through university delayed the entry of the baby boomers and their successors into the labor market.
--Women entered the labor force in greater numbers in the post-1945 years. For example, women aged 25-29 increased their labor force participation rate from 43% in 1970 to 75% 35 years later.
--Many workers, especially men, continue to work beyond their nominal retirement years. Almost one-third of men 65 and older are in the labor force.
These behavior shifts mean that the actual dependency ratio has been below the seemingly significant figure of 1.0 for much of Japan's modern history. Projecting participation rates forward at 2007 levels suggests that 2030 will not be much different from 1990.
Female participation. One change that could delay the decline is the increased participation of women. Despite their higher rate of working over time, their participation is less than in many rich countries, especially at higher level and executive jobs. Were Japanese women to work at the same rate as Swedish women, simulations suggest an almost 20-year delay in the effects of population decline and aging, not to speak of greater productivity and output.
Outlook. Japan's aging and declining population will impose a smaller burden on middle-age workers than is commonly reckoned. If women participated more actively in the economy, the burdens would be further reduced.