demographic dividends and population aging in japan

NTA First Workshop, 17-28 Oct. 2005

Demographic Dividends and Population Aging in Japan

Naohiro Ogawa

Rikiya Matsukura

Nihon University

Population Research Institute

0

2

4

6

8

10

12

14

16

18

20

1884 1891 1898 1905 1912 1919 1926 1933 1940 1947 1954 1961 1968 1975 1982 1989 1996 2003

Year

%

Proportion 65 and over

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

1947 1951 1955 1959 1963 1967 1971 1975 1979 1983 1987 1991 1995 1999 2003Year

Birth

Ideal number of children TFR

Total fertility rate (TFR) and ideal family size, Japan, 1947-2004

Is it too late?

Japanese Government was aware of it!

TFR

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

1947 1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007 2012 2017 2022

Stochastic forecast of TFR

40

45

50

55

60

65

70

75

80

85

1960 1965 1970 1975 1980 1985 1990 1995 2000

JapanAustriaBelgiumCanadaDenmarkFranceGermanyGreeceIcelandIrelandItalyLuxembourgNetherlandsNorwayPortugalSpainSwedenSwitzerlandUnited KingdomTurkeyUnited States

Trend in life expectancy at birth in OECD countries, both sexes combined, 1960-2001

0

5

10

15

20

25

1951 1956 1961 1966 1971 1976 1981 1986 1991 1996 2001

Pension benefits / National income

Medical expenditure / National income

Social security benefits / National income

20002005

20102015

20202025

Year

75

80

85

90

95

Age

Government

NUPRI

90% confidence level

90% confidence level

Government

NUPRI

Projected life expectancy at birth

96

98

100

102

104

106

108

110

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000

Year

Age

Men Women

Change in average age of death among 50 oldest persons in Japan, by sex, 1950-2003

Source: Ministry of Health, Labour and Welfare, Vital Statistics, various years.

0

500

1000

1500

2000

2500

3000

3500

2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

Year

Nu

mb

er o

f ce

nte

nar

ian

s (x

10

3 )

Median forecasts

95% Cl

UN

Government

Forecast numbers of female centenarians

The Japanese population has just

become the oldest in the world and has started to decline!

2000 2005 2010 2015

Year2020 2025

1.19

1.2

1.21

1.22

1.23

1.24

1.25

1.26

1.27

1.28

Billion

Projected total population, 2000-2025

And massive age structural shifts!

0

10

20

30

40

50

60

70

80

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025

Year

Per

cen

t

0

10

20

30

40

50

60

70

80

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025

Year

Per

cen

tAge structural change: 1950-2025

65+/15-64

0-14/15-64

Many ways to call gains derived from such age

transformations

Demographic Bonus or Window of opportunity(UNFPA, 1999; Birdsall and Singing, 2001; Merrick, 2002)

Demographic Gift(Williamson, 2001)

Demographic Opportunity(Fargues, 2001)

Demographic Golden Age(Vallin, 2002)

Demographic Dividend(United Nations, 2003)

Double Windows(Chen and Lin, 2004)

First and Second Dividends(Mason and Lee, 2005)

How big was Japan’s first demographic

dividend?

Here comes

The most important graph in Japan!

0

50

100

150

200

250

300

350

0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90

Age

Labor income Consumption

Age specific profiles for labor income and consumption in Japan, 1999

Thou

sand

yen

Source: Statistics Bureau, National Survey of Family Income and Expenditure, 1999.

Trend in first dividend in Japan, 1920-2025

Note: The first dividend is represented the support ratio which is defined as the difference between the annual growth rate of output per effective consumer and the annual growth rate of output per effective producer.

-0.4

-0.2

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1920 1925 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025Year

Perc

ent

0

2

4

6

8

10

12

14

1948 1953 1958 1963 1968 1973 1978 1983 1988 1993 1998

Korean war High economic growth(Golden 60s)

Vogel’s “Japan as No. 1” published

Bursting of the bubble economy

Note: Three-year moving average.

Trend in real GDP growth rate: Japan, 1948-2002%

Universal coverage of medical and pension

programs

Source: Economic and Social Research Institute, Cabinet Office, Government of Japan, Annual Report on National Accounts, various years.

Lost decade

Another computation of demographic

dividend, base on the Mason’s 2001 book

nlyy

yy

l

l−=−

0nl0nl

>−<−

0

1

2

3

4

5

6

7

8

9

10

1956-1960 1960-1965 1965-1970 1970-1975 1975-1980 1980-1985 1985-1990 1990-1995 1995-1998

GDP per capita

GDP per worker

DEMOGRAPHIC BONUS!

0

0.5

1

1.5

2

2.5

2000-2005 2005-2010 2010-2015 2015-2020 2020-2025

GDP per capita

GDP per worker

DEMOGRAPHIC ONUS!

Difference is

workers

VS

effective workers

Japan’s most important graph reflects a host of vital economic and social factors

Changing earnings profile

Hours worked

Women’s labor force participation

Sectoral allocation of the labor force

Child care and old age leave

Pension benefitsEnrollment rates in tertiary education

Freeters and Neets

Change in retirement age

Change in the remuneration system

Parasite singles

How was the first demographic

dividend utilized during Japan’s

postwar economic development?

0

50000

100000

150000

200000

250000

300000

350000

400000

450000

1970 1975 1980 1985 1990 1995 2000

Year

10 m

illio

n ye

n

Pension Medical care Others

Change in composition of the Japanese social security system

Longer life expectancy

generated the second demographic

dividend!

0

5

10

15

20

25

1955 1960 1965 1970 1975 1980 1985 1990 1995 2000

Year

perc

ent

68SNA 93SNA

Change in the household savings rate in Japan, 1955-2003

Savings rate = Net saving ÷ (Disposable income + Changes in pension reserves in pension funds)

Source: Cabinet Office, Government of Japan, Annual Report on National Accounts, Various years.

Growth of reserved funds for all public pension schemes combined, 1965-2002

0

50

100

150

200

1965 1970 1975 1980 1985 1990 1995 2000

Year

Trill

ion

yen

Source: Ministry of Health, Labour and Welfare, Financial Report on the Public Pension System: Fiscal Year 2003, 2004.

Periodic revision of pension schemes

2004 revision:

DB to DC

Changing family support !

0

10

20

30

40

50

60

70

80

90

1950 1955 1960 1965 1970 1975 1980 1985

Year

Perc

ent

Japan

Norway

U.S.A.

U.K.

SwedenDenmarkFinland

Spain

Percent of elderly aged 65 and older who coreside with children, Japan and other industrialized countries 1950-89

0

5

10

15

20

25

30

35

40

45

1981 1986 1991 1996 2001

Year

perc

ent

Italy

FranceU.S.A.

Germany

Japan

South Korea

Swede

Change in the proportion of those 60+ living in three-generational households, selected countries,

1981-2001

195540-59 Women

65-84

2.0-1.5-2.01.0-1.50.75-1.00.5-0.750.5-

197540-59 Women

65-84

2.0-1.5-2.01.0-1.50.75-1.00.5-0.750.5-

200040-59 Women

65-84

2.0-1.5-2.01.0-1.50.75-1.00.5-0.750.5-

201040-59 Women

65-84

2.0-1.5-2.01.0-1.50.75-1.00.5-0.750.5-

202540-59 Women

65-84

2.0-1.5-2.01.0-1.50.75-1.00.5-0.750.5-

Trends in the family support ratio in selected countries, 1950-2050

0

50

100

150

200

250

1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050

Year

Ratio

Japan Bulgaria Belarus Czech Republic Hungary Republic of MoldovaPoland Romania Russian Federation Slovakia Ukraine DenmarkEstonia Finland Iceland Ireland Latvia LithuaniaNorway Sweden United Kingdom Channel Islands Albania Bosnia and HerzegovinaCroatia Greece Italy Malta Portugal SloveniaSpain TFYR Macedonia Serbia and Montenegro Austria Belgium FranceGermany Luxembourg Netherlands Switzerland Australia New ZealandUnited States of America Mexico

0

10

20

30

40

50

60

70

1960 1965 1970 1975 1980 1985 1990 1995 2000

Year

Day

s

Australia Austria Belgium Canada Czech Republic Denmark Finland France

Germany Greece Hungary Iceland Ireland Italy Japan Korea

Luxembourg Netherlands New Zealand Norway Poland Portugal Slovak Republic Spain

Sweden Switzerland United Kingdom United States Mexico

Trends in average days of hospitalization in OECD countries, 1960-2003

Source: OECD, OECD Health Data 2005, 2005.

Change in the place of deaths among the elderly in Japan, 1965-2003

Source: Ministry of Health, Labour and Welfare, Vital Statistics, various years.

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

1965 1970 1975 1980 1985 1990 1995 2000

Year

Perc

ent

Hospitalized Nonhospitalized

Sudden

Value Shift

0

10

20

30

40

50

60

70

80

90

1950 1956 1962 1968 1974 1980 1986 1992 1998 2004Year

％Trends in norms and expectations about care for the elderly: Japan, 1950-2004

"Good Custom" or "Natural Duty“

Expect to Depend on Children

Mainichi Newspapers of Japan

Sources: Mainichi Newspapers of Japan, Summary of Twenty-fifth National Survey on Family Planning,2000.

Mainichi Newspapers of Japan, Summary of the 2004 round of the National Survey on Population, Families and Generations, 2004.

43

68

84

0

10

20

30

40

50

60

70

80

90

Japan U.S.A. China

(%)

Source: Japan Youth Research Institute, High School Students' Lifestyle Survey, 2005.

Proportion of high school students willing to take care of parents under any circumstances, when their parents get older and need some help in their daily lives due to poor health, Japan, United States and China, 2005

Declining Quality of Young Human

Capital

Mean score in student performance on the mathematics scaleRank Country 2000 Country 20031 Japan 557 Hong Kong-China 5502 Korea 547 Finland 5443 New Zealand 537 Korea 5424 Finland 536 Netherlands 5385 Australia 533 Liechtenstein 5366 Canada 533 Japan 5347 Switzerland 529 Canada 5328 Belgium 520 Belgium 5299 France 517 Macao-China 52710 Austria 515 Switzerland 52711 Denmark 514 Australia 52412 Iceland 514 New Zealand 52313 Liechtenstein 514 Czech Republic 51614 Sweden 510 Iceland 51515 Ireland 503 Denmark 51416 Norway 499 France 51117 Czech Republic 498 Sweden 50918 United States 493 Austria 50619 Germany 490 Germany 50320 Hungary 488 Ireland 503

Source: OECD 2004.

0.0 0.5 1.0 1.5 2.0 2.5

Rumania

Russia

Italy

Malaysia

Singapore

Indonesia

Belgium

Philippines

Netherlands

U.S.A.

Norway

Taiwan

Australia

Sweden

Korea

Japan

Hours

Average hours spent for homework by 8th

graders in selected countries

0.0 0.5 1.0 1.5 2.0 2.5 3.0

Rumania

Russia

Italy

Malaysia

Singapore

Indonesia

Belgium

Philippines

Netherlands

U.S.A.

Norway

Taiwan

Australia

Sweden

Korea

Japan

Hours

Average hours spent for watching TV by 8th

graders in selected countries

How can Japan cope with its

rapid population aging?

Policy options available to Japan:

(1) raising fertility and facilitating higher labor force participation of women, (2) better utilization of aged workers and extension of

the retirement age, (3) labor-saving technology and more efficient use of

young workers, (4) international migration,(5) direct foreign investment, (6) social security reform and limits to family support,

and (7) effective utilization of the demographic dividends

Option 1

Retire later

Are they healthy enough?

DataNihon University Japanese Longitudinal Study of Aging• wave 1 in 1999 and wave 2 in 2001• nationally representative sample of non-

institutionalized population aged 65 and over in 1999

• face to face interview survey using structured questionnaire

Definition of Health StateHealthy/Active• no difficulty performing 7 ADLs and 7

IADLsUnhealthy/Inactive• unable to perform at least 1 ADL/IADL• ADL: bathing, dressing, eating, moving from bed to a

chair and vice versa, walking in the home, going outside, and toileting

• IADL: preparing own meals, shopping for personal items, managing money, making a phone call, doing light house work, doing out alone by using public transportation, and taking medication

Prevalence rates• average of prevalence rates in 1999 and

2001

Transition probabilities• IMaCh

Estimating Ingredients

Active

Dead

Inactive

0.001

0.01

0.1

1

65 70 75 80 85 90 95

Age

Men

Incidence of disabilityMortality from active stateRecovery of healthMortality from inactive state

0.001

0.01

0.1

1

65 70 75 80 85 90 95

Age

Women

Estimated annual transition probabilities in Japan

Source: Lievre and Saito (2005).

Projected elderly population by heath status, Japan 2000-2025

(based on health status transition rates)

0

5

10

15

20

25

30

35

40

2000 2005 2010 2015 2020 2025

Year

Milli

ons

Healthy Unhealthy

Mandatory retirement age is another serious

constraint

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

1977 1982 1987 1992 1997 2002

%Retirement ageHealth problems

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

1977 1982 1987 1992 1997 2002

Year

%Retirement ageHealth problems

Trends in reasons for quitting job for persons aged 65 and over: Japan, 1950-2004

Source: Statistics Bureau, Ministry of Public Management, Home Affairs, Posts and Telecommunications, Employment Status Survey,

MEN

WOMEN

49.0

51.0

53.0

55.0

57.0

59.0

61.0

63.0

65.0

67.0

1965 1970 1975 1980 1985 1990 1995 2000

Year

Year

Retirement age Male life expectacy at age 20 Female life expectancy at age 20

Change in retirement age at large-scale businesses and life expectancies at age 20 for men and women: Japan,

1965-2002

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

Germany Italy United States France Japan

Perc

ent

Men

Women

Labor force participation rates for men and women aged 65 and over in selected countries, 2000

Source: ILO, Yearbook of Labour Statistics 2002, 2003.

(1) All healthy persons work

(2) Retirement age from 60 to 65

Two simulations

NUPRI Model projection (Base run)Potential GDP (Trillion yen) 2005 561.2 653.8 (16.5%) 576.4 (2.7%) 2015 600.6 747.2 (24.4%) 661.8 (10.2%) 2025 619.1 791.3 (27.8%) 692.3 (11.8%)Potential GDP per capita (Million yen) 2005 4.4 5.1 (16.5%) 4.5 (2.9%) 2015 4.8 5.9 (23.9%) 5.3 (10.8%) 2025 5.1 6.5 (26.7%) 5.7 (12.3%)Labor force (1000 persons) 2005 66958 86803 (29.6%) 70386 (5.1%) 2015 62827 89107 (41.8%) 73938 (17.7%) 2025 59172 87880 (48.5%) 70921 (19.9%)

Simulation 1 Simulation 2

Simulation exercises for alternative labor force participation among the elderly in Japan, 2005-2025

Simulation 1: We assume that the all healthy persons aged 65 and over will participate with labor force throughout the projection.

Simulation 2: We assume (1) that the labor force participation rates of those aged 60-64 are raised to those of 55 to 59 and (2) that the participation rates of those aged 65 and over are raised by 10 percentage points above the current rates.

Earnings profile changes and demographic

dividends will be also changing

Option 2

Effective use of accumulated wealth

owned by the elderly

Financial assets

Real assets

Public pension wealth

Evaluated in 1999

Public pension wealth

Discount rate 1.25%

(average interest of long-term

government bonds)

Age profile of assets and pension wealth in Japan, 1999

0

10

20

30

40

50

60

18 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95

Age

Millio

n ye

n

Financial assets Real assets Present value of future pension benefits

Accumulated wealth for those aged 60-90

1637 trillion yen

US $16.37 trillion

Accumulated wealth can be invested

abroad

CautionOECD’s warning!

71 % of Japanese adults have no knowledge about investment in equities and

bonds

CautionOECD’s warning!

57 % of Japanese adults have no knowledge of financial products in

general

Financial education is

urgently needed

Future Japanese elderly persons

will be wealthy!

Future Japanese elderly persons

will be

not only wealthy but healthy!

Future Japanese elderly persons

will be

wealthier, healthier

and

cleverer!

Future Japanese elderly persons

may save

Japan!

Even fertility may recover!!!

Similar studies

in Japan

1990 study done by Takayama and his

associates

0

10

20

30

40

50

60

70

80

20 25 30 35 40 45 50 55 60 65 70 75

Age

Mill

ion y

en

Finacial asset Real asset Pension

Takayama’s Study, Age profile of assets and pension wealth, Japan 1984

0

10

20

30

40

50

60

70

80

20 25 30 35 40 45 50 55 60 65 70 75

Age

Million y

en

Finacial asset Real asset Pension

Age profile of assets and pension wealth, based on Takayama’s approach, Japan 1999 (adjusted for 1984 prices)

0

10

20

30

40

50

60

70

80

20 25 30 35 40 45 50 55 60 65 70 75

Age

Million yen

0

10

20

30

40

50

60

70

80

20 25 30 35 40 45 50 55 60 65 70 75

Age

Million yen

Finacial asset Real asset Pension

Age profile of assets and pension wealth, Japan 1984 and 1999 1984 1999 (adjusted for1984

prices)

0

50

100

150

200

250

1984 1987 1990 1993 1996 1999 2002 2005

Year

Ren

t

96

97

98

99

100

101

102

103

104

CPI

Land Prices(1984=100) CPI(1984=100)

Change in Land Prices and CPI in Japan

First Familial Transfer in

the History of Mankind

Australopithecus aphaeresis