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Home Publications Blogs Beat the Press Contrary to the NYT's Assertion, Japan Does Not "Face a Looming Demographic Squeeze"

Contrary to the NYT's Assertion, Japan Does Not "Face a Looming Demographic Squeeze"

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Saturday, 01 January 2011 12:25

For some reason the NYT 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 article tells readers that the share of the population over 65 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 will have no problem finding jobs since there will be a shortage of workers. Also, because of the longevity and 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.

Comments (14)Add Comment
Chief Doofuss
written by dilbert dogbert, January 01, 2011 12:37
Thanks for all the efforts you put into the blog.
Please don't weaken as I depend on you to counter the false arguments put out by the Powers That Be.
...
written by JTM, January 01, 2011 12:52
Good point regarding the POTENTIAL benefits of productivity growth. It needs to be continually emphasized that we here are deprived of any ACTUAL benefits since the dividends of productivity growth have for 30 years or so been going entirely to, well, dividends. I.e., to profit rather than workers. A natural consequence of unfettered capitalism and it's ability to buy political influence and generate pervasive propaganda (under the guise of a "conservative movement".
...
written by vorpal, January 01, 2011 2:31
Lower population probably enhances productivity growth by encouraging investment in factors of productivity.

If you keep immigration low, wonderful things can happen. There's more for everybody, imagine that.
Bump Out Boomers, Bring in Bloomers
written by izzatzo, January 01, 2011 4:18
If Japan were facing a "demographic squeeze" then young workers will have no problem finding jobs since there will be a shortage of workers.


Exactly. This also drives the conspiracy behind the Boomer-Worker Demographic Squeeze in the USA, a plot by younger workers to use the deep recession to induce older workers to retire early so wages will be driven up by the subsequent labor shortage after demand returns.

All the talk about a SS shortfall was a ploy to hide the real backstory as reported by Mr Whose Your Nanny, who gets a shout-out from the younger generation for supporting the Bump Out Boomers-Bring In Bloomers program.
...
written by Kusuzaki, January 01, 2011 11:54
It's not just the NYT that gets it wrong, but all major newspapers and politians here in Japan. The whole of Japan is so convinced about the evils of declining birth rate that there is even a "Minister of State for Special Missions", the mission being "countermeasures to declining birthdate". Apparently, the story here is that smaller number of tax payers will bankrupt the social security system.
@JTM
written by Dwight, January 02, 2011 4:31
Japan might do a better than the U.S. at fairly sharing the benefits of increased productivity.
Less people - more for everything else
written by Jack Thomsen, January 02, 2011 8:26
People are a plague - on forests, rivers, oceans and jungles. When I see what Brazil is doing to the lungs of the earth it makes me long for disasters which will cull human populations.

NO MORE PEOPLE
about calculation
written by himaginary, January 02, 2011 10:32
"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."

2010
over 65 : 20-65 : under 20 = 25:55:20
55/25=2.2

2050
over 65 : 20-65 : under 20 = 40:45:15
45/40=1.125, not 1.4


"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."

You have to think about the allocation of total 180%, not just that of 80% increase.
Currently, 24 of 100 goes to over 65 (100*0.7/(2.2+0.7)=24). The rest(=76) goes to under 65.
In 2050, 69 of 180 goes to over 65 (180*0.7/(1.125+0.7)=69). The rest(=111) goes to under 65.
So the living standard over 65 increases by 186%, while that of under 65 increases by 46%, ceteris paribus.
I doubt that this unbalance in increase doesn't suggest any problem.
Correction of my previous comment
written by himaginary, January 02, 2011 12:41
It's neither allocation of 180% nor 80%. Currently, 2.2 working people support one over-65 person. In 2050, 1.125 working people support one over-65 person. So, the GDP per over-65 support becomes 180*1.125/2.2=92. Therefore, it's the allocation of 92%.
In 2050, 35 of 92 goes to over 65 (92*0.7/(1.125+0.7)=35). The rest(=57) goes to under 65.
So the living standard of over 65 increases by 46%, while that of under 65 decreases by 25%, ceteris paribus.
However, as the number of working people also decreases from 2.2 to 1.125 in this calculation, the living standard of working people per capita increases by 46% ((57/1.125)/(76/2.2)=1.46), which is same as over-65 increase. So there is no imbalance in increase of the living standard, after all.
But the difference of 80% increase in productivity and 46% increase in the living standard does come from demographic change. I doubt that this shedding of more than 40% ((80-46)/80=0.425) of productivity increase doesn't suggest any problem.
...
written by PeonInChief, January 02, 2011 12:53
In California our state government was so concerned about the looming retirement of 40% of state workers that they instituted a program, Boomerang, to encourage post-retirement workers to come back part-time, as there weren't going to be enough younger workers to replace the retirees. (Oddly, the government has exacerbated this problem with furloughs and wage cuts, as many more older workers are retiring earlier than expected.)

This is probably a bigger problem in the public sector, as a greater proportion of public sector jobs require education/experience.
Lump of Labor Fallacy Fallacy
written by troy, January 02, 2011 1:35
In a mature economy like Japan's, will all natural resource extraction jobs pretty much tapped if not exhausted, there is in fact too many people for the work available in many places.

Japan has its moderate unemployment by basically excluding most women from most career track jobs (exceptions exist but they are noticeable in their relative rarity).

Old people really don't consume much in the scheme of things, rice, fish, vegetables, and semi-skilled (but tough) nursing labor, all things Japan can provide internally from surplus labor.
Jack Thomsen
written by JohnM, January 03, 2011 12:16
Jack- except you of course!
re:
written by Cheenie, January 11, 2011 9:14
People in japan are extremely fun loving, intelligent and friendly people. Today, they are one of the leading nations of the world technology, science, human development and inventions. Try to read lots of information and how to speak japanese at www.rapidorg.com

Cheenie
www.rapidorg.com
re:
written by Latest Tech News , January 14, 2011 2:18
Great info!
I found your web page on google and it seems to have what I've been looking for. Here's another source that worth a look about this also. Thanks for sharing!

Patricia
Breaking News
www.techblog.ws

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Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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