Asia Program

Tackling Japan’s Demographic Time Bomb

Aug 29, 2014

The writing is clearly on the wall: Japan needs more tax-paying, young citizens to offset its ever-increasing number of pensioners if these retirees wish to maintain their current standards of living. The question, however, is whether there are public policies that can provide a solution to this impending crisis, and what may happen if the number of Japanese retirees continues to surge past the number of workers.

Thanks to a heavily subsidized public healthcare system, not to mention a diet naturally low in fat and a lifestyle that encourage lots of walking, the Japanese are living ever longer. The nation boasts the world’s longest life expectancy of nearly 85 years, compared to 79.6 years in the United States (a number that puts it in 42nd place globally). While living long and living well is certainly enviable, it comes with a heavy price tag for Japan when the number of children born annually continues to decline steadily.

The Japanese government estimates that the current population of 127 million will shrink by almost a third to about 87 million by 2060. Given that the birth rate averages 1.4 children per woman, such dire projections are hardly surprising. Indeed, Japan’s population has been on the decline for the past decade. Today, nearly a quarter of the population is over 65 years old, and that figure is projected to rise to 40 percent over the next quarter century. Coupled with the fact that Japan has the unhappy title of being one of the most indebted countries in the world, with a debt-to-GDP ratio above 240 percent, it hardly takes a degree in economics to figure out that the current situation is unsustainable. Japan’s demographic time bomb is not merely ticking—it is already on the brink of exploding.

Despite all indications that Japan needs to take action now to boost its population and cut back on pension spending, proposals by the ruling government of Prime Minister Shinzo Abe have been far too tepid to bring about the necessary changes. A graying society will not only place a heavy burden on the country’s finances but will also put Japan’s national security at risk and reshape its political landscape. Although Abe has repeatedly acknowledged this demographic challenge, and although a governmental advisory panel earlier this year suggested setting a numerical target for the birth rate to over two children per woman by 2034, nothing short of a social revolution will be sufficient to combat the problem of Japan’s rapidly ageing society. Numerous tax breaks, revised welfare spending measures, and more child-care centers are of course well-intentioned measures that should be enacted. What is truly needed, however, are four critical measures that would fundamentally change Japan’s social values in order to respond effectively to the country’s looming demographic crisis.

First, the Abe government should allow for career on-off ramps that would help retain the country’s most talented citizens. Today, increasingly fewer Japanese companies are able to provide lifetime employment guarantees that were readily available in the past. Yet most blue chip companies, as well as the civil service, continue to adhere to corporate Japan’s traditional practice of recruiting undergraduate students once a year at the same time. Career-track employees are usually the ones who joined the company straight out of college, and opportunities for those who have taken time away from school or who have chosen to change careers remain limited. The same is true for retirees and individuals above the age of 60. Last year, Japan’s mandatory retirement age was raised to 61, and will continue to go up by one year every three years until 2025, when the retirement age reaches 65. This logic, however, flies in the face of the reality confronting Japan’s different age groups. Many people in their sixties, who have accumulated more contacts and face reduced pressures at home than their younger counterparts, are better able to contribute to the workplace. Greater flexibility in when each person retires, not to mention how workers young and old shape their careers, could bolster Japan’s tax revenue at this critical demographic juncture.

Empowering and increasing the representation of women at all levels of the workplace, a key policy objective for Prime Minister Abe, could also help resolve the country’s impending crisis. Abe’s rally to boost the number of daycare centers and invest in after-school activities for students has raised the political visibility of this issue. Given that Japan still ranks 123rd out of 189 countries in terms of the percentage of women serving in parliament, however, there is still a long way to go before even the appearance of equality between genders emerges. Encouraging and supporting a greater number of working women will be crucial to increasing Japan’s tax base. Given that Japanese women are usually well-educated, keeping them active in the workplace could potentially both increase workplace diversity and enhance the global competitiveness of Japanese corporations.

Third, the Abe government should encourage romance—or at least get more of its people to marry and have children. Many Japanese women, particularly those who value having a career of their own, are currently hesitant about marriage because it would lead to a drastic change in their lifestyles. Many recognize that even the most understanding of husbands may not help offset the social norms that pressure married women with children to stay home and look after the family. As a result, last year the number of marriages hit a post-World War II low of 661,594 couples countrywide. For many women, the choice is between getting married and losing what they have achieved professionally or retaining their independence by remaining single. Such a diametrical decision, however, should be softened for the benefit of all Japan. A determination by the Abe government to offer more tax breaks and other financial incentives would certainly help counteract this trend.

Fourth and finally, Japan must embrace immigration as a solution to its impending fiscal and demographic woes. A declining birthrate is a global trend, as is an ageing population. It will therefore be increasingly difficult for any country to meet all of its labor needs relying solely on the population that exists within its borders. In the case of Japan, more caregivers, nurses, and other providers catering to a graying society will be needed, especially if more women choose to go back to work full-time. The Japanese government will thus inevitably need to consider seriously the possibility of opening its doors to more immigration, rather than just to the highly skilled workers it currently courts. Although the Japanese have been at the forefront of developing robots designed to meet the mounting tsunami of elderly people’s needs, there is a limit to what can be expected from technology, especially when the psychological as well as physical needs of an ageing society are considered.

Japan stands on the edge of a precipice. The Abe government has at its disposal numerous policy initiatives to offset or mitigate the impact of the crisis it will increasingly confront in the coming years. Until it takes concrete action, however, Japan’s demographic time bomb will tick on.

The opinions expressed here are solely those of the author.

This article was originally published in the Georgetown Journal of International Affairs.

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