The challenges of Japan’s demography

By S.B. | TOKYO

JAPAN IS DEALING with an extreme version of the demographic challenges that face many rich countries. In an interview with The Economist, Shinzo Abe, the prime minister, said the population was both declining and ageing at “unprecedented speed”. The fertility rate—the number of children the average woman will have over a lifetime—is 1.4 and there are approximately 400,000 more deaths than births every year. At the same time, life expectancy in the Land of the Rising Sun is 84 years, the highest in the world. Over 28% of the population is older than 65, compared with 21% in Germany, 15% in America and 6% in India. More than half of babies born today in Japan can expect to live to 100.

The increase in life expectancy is good news, of course. Most people prefer to remain alive. But an ageing, declining population creates new problems. For starters, Japan has a severe labour shortage: there are currently 1.6 vacancies for every job applicant. The ratio of old retirees to young active people is rapidly increasing. People are spending ever more of their lives drawing on public funds, including through pensions and medical care, rather than paying into them. The social-security system is unsustainable. Public debt is 250% of GDP and the government reckons that by 2040 social-welfare costs will have risen from their current ¥121trn ($1.06trn) to ¥190trn a year.

Mr Abe’s government is trying several ways to ease the demographic crunch. To slow the shrinking of the labour force, it is encouraging more women (who have tended to drop out of jobs when they have babies) and more old people to work. Also, Japan’s parliament is debating a bill to allow thousands of blue-collar immigrants into the country, to work on farms, on building sites and in nursing homes. Only 2% of the workforce is foreign compared with 17% in America. The government has also mooted ideas including raising the retirement age and deferring the age when pensions can be drawn. It wants to reduce medical costs by encouraging people to stay healthy, and may raise the amount people have to pay towards their treatments. And it is promoting the use of robots and other technology to raise productivity.

All this is sensible and is already having some effect. There are 2m more women working than five years ago, albeit often in part-time and low-paying jobs. Several companies have raised retirement ages, and many re-employ people after they retire. Some 23% of people over 65 work in Japan, which is the highest proportion in the G7, a group of industrial nations. The government recently raised the amount that wealthy Japanese over 70 have to pay towards medical care. Yet the measures are still underwhelming. The number of new immigrants, for example, is expected to reach 345,000 over the next five years, which will not come close to ending the labour shortage. And the affluent old pay only a fraction of their own medical costs. There is no reason why Japan should not be able to cope with extreme ageing—it has had plenty of warning. But Mr Abe needs to be bolder if he is to set the nation on a sustainable path.