Note that the labor force participation rate of women in Japan is a mere 48.5 percent, much lower than the 72.0 percent rate for men, a fact disregarded by both the New York Times and Dean Baker. — Ed.
For some reason the New York Times wants to scare its readers about Japan’s economic situation, warning that the country faces a “demographic squeeze” because its population is declining. Simple arithmetic shows that this is nonsense. The Times tells readers that the share of the population over 65 in Japan is projected to rise from 25 percent in 2010 to 40 percent in 2050. Given that roughly 20 percent of the population is under age 20, this implies that the current ratio of people ages 20-65 to people over age 65 is approximately 2.2 to 1. Assuming the under 20 portion falls to 15 percent of the population by 2050, in that year the ratio will be 1.4 to 1.
If productivity growth averages just 1.5 percent annually (it has been averaging more than 2.0 percent in the U.S. over the last 15 years), then output per worker will be more than 80 percent higher in 2050 than it is today. If the average retiree currently consumes 70 percent as much as a prime age worker, then this increase in productivity would allow retirees in 2050 to enjoy a 50 percent rise in living standards above current levels, while still leaving workers almost 30 percent better off.
The situation will be even better insofar as more workers are pulled into the labor force. As this article notes, because of weak demand, many younger workers cannot find jobs. If Japan were facing a “demographic squeeze” then young workers would have no problem finding jobs since there would be a shortage of workers. Also, because of the longevity of relative good health of many older Japanese, it is likely that many people will opt to continue working past age 65.
The decline in population is in fact a benefit in many respects for Japan. It is a very crowded island with expensive land prices. A falling population will reduce the pressure on land making housing more affordable. It will also reduce congestion in cities. In addition, the decline in population will make it easier for Japan to meet commitments for reducing greenhouse gas emissions, if countries are ever held responsible for the contributions to global warming.
Dean Baker is an economist and Co-director of the Center for Economic and Policy Research, in Washington, D.C. This article was first published in CEPR’s “Beat the Press” blog on 1 January 2011 under a Creative Commons license.