RIETI Report January 2017

Demography and the Japanese Economy

The world is in a state of overpopulation, which is acknowledged as a global challenge. However, population decline is a problem unique to advanced countries, and Japan is no exception as its population is projected to decrease to about 40 million by the early 22nd century. In the January issue of the RIETI Report, we present the BBL seminar "Demography and the Japan Economy" featuring Senior Advisor and Faculty Fellow Hiroshi Yoshikawa.

Yoshikawa addresses several main points in this seminar, and reviews the demographic situation in Japan where the population decline is the biggest problem facing its economy and society. The social security and public finance situation can be seen in the growing disparities driven by the aging population and disparities within the working population as exemplified by income inequality between those in permanent full-time positions and those in precarious employment. Furthermore, Japan's social security expenditures are rising with the aging of the population to a level far exceeding the amount of revenue received in premiums, and 40% of the expenditures are now covered by public funds.

Yoshikawa continues with a look at the problem facing Japan's rural areas which are experiencing depopulation as agglomeration in large cities continues. However, he stresses that the dispersion or agglomeration of the population should be determined by the combination of the advantage of labor agglomeration and the comfort of people's lives, and not by the government forcibly shifting the flow of people. As Japan's population is declining, the popular argument is that zero growth is the best that the Japanese economy can achieve, but Yoshikawa refutes this as he states that the economic growth of advanced economies is determined by the growth of per capita income, which is determined by innovation, and furthermore, innovation drives labor productivity. Yoshikawa adds that companies have a critical role to play and should be making more efforts as they are the ones counted on to serve as the driving force of the Japanese economy. The seminar concludes with a Q&A session on various issues.

This month's featured article

Demography and the Japanese Economy

YOSHIKAWA HiroshiSenior Advisor and Faculty Fellow, RIETI

Population problem of Japan

The relationships between the population, economy, and society of a country or region are diverse. There have been many times in history when the size of population was said to be too large. Prewar Japan was considered to be overpopulated, which was one of the factors that drove the country to colonize a region then known as Manchuria. From a global perspective, we are now in a state of overpopulation, and the United Nations acknowledges it as a global challenge. Thus, we must first recognize that population decline is a problem unique to advanced countries.

On that basis, I would like to move on to discussing the situation in Japan. Population projections over the next 100 years through the early 22nd century have been made available. Under the medium fertility scenario, Japan's population is projected to decrease to about 40 million by the early 22nd century. However, as this scenario is quite optimistic and the low fertility scenario is more realistic, there is a good possibility that Japan's population will fall below 40 million. It is a tremendous challenge for any society to lose two-thirds of its population in the span of 100 years without massive deaths caused by war or other extraordinary events.

Population decline is the biggest problem facing the economy and society of Japan. So, I am in support of the government's efforts to implement proactive measures to address the problem of population decline and low fertility. In particular, it is an undeniable reality that many young couples want to have children but are unable to do so because the current social environment is far from supportive, and there is significant room to improve the situation.

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