Aging, Interregional Income Inequality, and Industrial Structure: An empirical analysis based on the R-JIP Database and the R-LTES Database

Author Name FUKAO Kyoji  (Faculty Fellow, RIETI) /MAKINO Tatsuji  (Hitotsubashi University)
Creation Date/NO. February 2015 15-E-022
Research Project Regional-Level Japan Industrial Productivity Database: Database Refinement and Its Analysis
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By merging two newly created databases for the analysis of prefecture-level productivity—the R-JIP Database 2013 and the R-LTES Database 2013—with other regional statistics, we examine how and why "aged prefectures" differ from other prefectures. Our main findings can be summarized as follows:

1. The high aged population ratio of some prefectures such as Akita and Shimane is due to a large out-migration experienced during Japan's high-speed growth era from 1955 to 1970.

2. Aged prefectures tend to have lower labor productivity. At the same time, we find that population aging does not systematically reduce local total factor productivity (TFP) levels. We therefore argue that, rather than population aging reducing TFP levels, the causality runs in the opposite direction. Most prefectures with a high aged population ratio today had a low TFP level 30-40 years ago; as low TFP levels mean lower wage rates, such prefectures experienced an out-migration of the young. Given that TFP differences across prefectures are stable over time (prefectures with a low relative TFP level maintain this condition), we observe a negative correlation between current TFP levels and current aged population ratios. This implies that there is no need for concern about Japan's average labor productivity declining in the future as a result of population aging.

3. Aged prefectures tend to have large net imports of goods and services. Their large net imports are mainly the result of large negative government savings. Active government capital formation in aged prefectures also contributes to some extent to their net imports. Since large transfers in the form of receipts of public pensions and medical care from less aged prefectures to more aged ones are not sustainable, it seems that residents in prefectures that are less aged now should expect a post-retirement life that will be much less prosperous than what residents in Akita and Shimane enjoy today.