“Demography is destiny.”
It’s a popular phrase, but it’s incorrect.
That was made apparent to me on a recent visit to Tokyo, where gray-haired individuals far outnumbered children in the streets. But the hustle and bustle also revealed that Japan does not accept that its aging population means its economic prospects must diminish. On the contrary, Japan is harnessing two of its assets — one long underutilized and the other a long-standing source of strength — to support continued economic expansion.
Japan certainly faces demographic challenges. It is already the oldest country in the world, as measured by both the median age of the population (46.3 years) and the share of the population aged 65 years or more (26 percent). That compares to just 40.4 years and 17 percent, respectively, among all high-income countries. And Japan’s birthrate and inward immigration rate are low—as a result, the population is not only aging, but shrinking. Japan’s working-age population peaked more than 20 years ago, in 1995.
And yet, Japan’s economy is chugging along. It is by no means the fastest-growing major economy in the world, but it nonetheless continues to expand. In fact, Japan’s GDP per capita growth averaged 1.42 percent annually over the last five years — slightly ahead of the OECD average of 1.36 percent.
As any economist will tell you, the two keys to sustained economic growth and higher living standards are increases in the size of a country’s labor force and rises in those workers’ productivity. Economies cannot grow in the long run without at least one of the two forces in play. In spite of its demographics, both forces are now propelling the Japanese economy forward.
How has Japan’s economy remained resilient in the face of its demographic challenges? Sunday offers the answer: It’s the International Day of Women and Girls in Science. Both aspects of what the world is celebrating today — women and science — are at play in Japan’s economic resilience.
First, the Japanese government has actively sought to increase the size of its labor force by encouraging more women to work. Prime Minister Shinzo Abe’s launched his “Womenomics” program in 2013, which has increased the rate of replacement pay for those on parental leave and expanded the capacity of daycare facilities. In addition, the government now requires companies with more than 300 employees to disclose gender diversity targets and associated action plans for achieving them.
In part due to those efforts, female participation in the labor force has risen from 65 percent in 2013 to 68.1 percent in 2016 — far ahead of the OECD average of 63.6 percent. That built on gains in previous years thanks to labor market reforms in the late 1990s and early 2000s.