Japan Does Not Need More Workers

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Friday, 21 December 2012 05:50

Towards the end of an article that discussed efforts by Japan's government to boost the demand for workers by generating inflation the NYT told readers:

"The country has an aging, shrinking population. It needs more workers."

Umm, no. It does not make sense to say that Japan is suffering from inadequate demand, which means that it has more supply of workers than demand for workers, and then to say it needs more workers. Up is not down.

There is a well-funded effort in the United States to try to place demographics at the center of economic policy debates. Countries are growing older. This is not new, they have been growing older for many decades. Fans of arithmetic know that the increase in living standards that result from even modest growth in productivity swamps the impact of demographics in lowering living standards. Here's the story for the United States over the next 23 years -- the peak pressure associated with the retirement of the baby boomers. 

alt                                Source: Author's calculations.

And remember after 2035, the demographnics change little for the rest of the century, but productivity keeps growing. In short, the aging story is a joke.