Population Ageing and Economic Growth in Japan | Dr Keisuke Otsu | Think Kent



hi my name is Casey Olsen I'm a lecturer in macroeconomics and growth at the University of Kent today I'd like to talk about population ageing and economic growth with a particular focus on the Japanese economy the reason why I'm going to focus on Japan is because it's leading in population ageing in the world by the way if you're interested in the details of today's talk they'll be available in a working paper titled population ageing government policy and the post-war Japanese economy the figure plots the population aging taking place in Japan the blue is the group of population aged from 15 to 64 the red is the group of population aged above 65 now I've plotted these two age groups over time from 1955 as you can see the true two groups are growing all the way up to 1990 however after 1990 the blue group starts to shrink now this is because the number of children in Japan has been declining and the youth population is shrinking whereas as you can see the red group is constantly growing this is mainly because the life expectancy in Japan has been extended over time as a result the share of aged population among adults have been growing as you can see in 1955 the share of age population was somewhere around 8% whereas today it's over 30% now this is unprecedented in the world today we can compare the 30% to 25% in countries like Italy 23% in Spain our neighbors in Asia are somewhere around 15% in Hong Kong and Korea however the World Bank estimates these aged population shares to grow in all these countries and in year 2050 we will all reach 40% or we could say that the wave of population using will hate us everywhere next let's talk about the economic effects of population ageing the first that will come to mind would be its effect on the employment rate the reason being will have a shrinking population 15 to 65 years old which are the working population on the other hand will have a growth in the population aged over 65 years old which is the retirees as a result in the economy as a whole will have less employment per adult the second would be the increase in Social Security burdens on the workers now this is because in 1955 one age person was supported by ten workers or as today one aged person is supported by only two workers therefore the burden for each worker is increasing if we take the tax rate of Social Security from 1955 all the way up to today you can see that back then it was below 5% and today it's above 20% now the third effect would be the increase in the health expenditure so this is because the elderly people will demand more health care service so when the population share of aged people increases will have a higher demand for health care services the garment is supporting the payments of health care services hence the garment expenditure will increase in these particular services if we take a look at the share of healthcare expenditure among total garment consumption we could see that in 1980 the share was below 25% and today it's above 35% at the same time if we take a look at garment consumption relative to GDP this share has been rising over time as well in 1980 that was around 15% and today that's around 20% so it's fair to say that the increase in demand for healthcare services has been leading to an increase in garment consumption so then the question would be what are the economic effects of these channels how do these channels affect economic growth in order to answer this question we developed a macroeconomic model that incorporates lots of aspects of the Japanese economy now what we wanted to do here is to conduct a counterfactual exercise in which we remove the channels through which population aging affects economic growth and measure the quantitative impact the first we did was to remove the effect of declining employment share the red line represents the benchmark which is the model with all of the factors the black line is a simulation result when we kept the employment share constant throughout the simulation so this result shows that if the employment share did not decline the economy would have been 20 percent larger in terms of per adult GDP the blue line shows a simulation where we kept the Social Security contribution constant that is if we didn't see a rise in Social Security contribution the economy would have been 10 percent larger than we see today finally the green line is the simulation result when we kept the Garmon expenditure constant that is if government expenditure did not increase the economy would have been slightly smaller than what we see today so the final point needs a footnote this might sound as if the increase in healthcare expenditure was a good thing for the economy now that might not be the case because if healthcare expenditure increases something else most likely has to decrease that could be education that could be science and these may have a potential impact on future economic growth for the few your agendas we still have several things that are unanswered such as population aging and its effect on demand and supply structural change we also haven't answered questions such as population aging and its effect on intergenerational inequality these would be pursued as future research agendas at the macro economics growth and history Center also known as magic thank you very much for listening to my talk today




Comments
  1. Japan could fix both their shrinking population and their stagnant economy if they would just allow more immigration.

  2. Chief Otsu, delivered with so much clarity and relaxed poise! I wonder what Japan will look like in 30 years if current trends continue..

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