VIII Международная студенческая научная конференция Студенческий научный форум - 2016

The world’s population is actually undergoing two historically significant demographic shifts – rapid ageing and urbanization.³ As a result, the number of older people living in urban environments is growing dramatically.

Life expectancy, fertility rates and migration flows are the key determining factors underlying all population projections. Any objective assessment of the likely evolution of these factors over the coming decades suggests that ageing of Japanese populations is an inescapable fact, firstly, due to the highest life expectancy in the world with relatively low health care costs (7.9% of its gross national product spent on health care compared with 16% in the United States). Secondly, due to the fall in fertility rates to below the critical threshold levels required for generational renewal.

According to statistics, by 2024, more than a third of Japan’s population will be over the age of 65, making it one of the oldest in the developed world.⁴ Retired households will overcome in quantity households in their prime saving years, so savings rates will fall dramatically, and Japan’s financial wealth will begin to decline. The continual improvement in living standards that the country has enjoyed over the past half century will eventually end.

A decline in financial wealth of Japan could not only bring down the country’s living standards, but also spread the economic misery to other countries. Nevertheless, this outcome is not inevitable. Japan’s future growth will depend on concerted efforts to increase the returns earned on financial assets and to persuade younger people to save more.

The main problem of the rapid aging of the Japanese population is that it will dramatically reduce savings and wealth – and cut off an important supply of capital to the world.

There is a wide range of source variety in this paperwork: starting from the official documentation and finishing with the modern researches and reliable internet sources, which allow forming the relatively clear opinion on the subject of research - the problem of aging and its economic impact in Japan.

Theoretical approach to the concept of aging and its economic impact

Biological basis of aging

For better insight into the concept of population ageing, it is necessary to introduce (very briefly) main theories on causes of ageing.⁵ While traditional aging theories hold that aging is not a genetically programmed, modern biological theories of aging fall into two main categories: programmed and damage (error) theories. Programmed aging theories implies that aging is genetically programmed to occur with time, that is, it brings in the concept of internal biological clock to explain the process of ageing from childhood. Damage, or error theories, blame the external or environmental forces that gradually damages the internal cells and organs leading to ageing.

Thus, these theories, acknowledging wide range of various causes of ageing, imply that ageing, and consequently population ageing, is an inevitable phenomenon for a country that has a great effect on all spheres of the country, in particular, on the economy.

Overview of population aging

Population ageing is a phenomenon that takes place when the median age of a country or region rises due to rising life expectancy and declining fertility rates.⁶ Ageing is a great triumph of development since increasing longevity is one of humanity’s greatest achievements. People live longer due to improved nutrition, sanitation, medical advances, health care, education and economic well-being. At present, 11 percent of the world’s population are people aged 60 and over (See Appendix 1). Moreover, the United Nations Population Fund (UNFPA) estimated that by 2050 that number would rise to approximately 22 percent⁷. The ageing is progressing fastest in developing countries, including in those that also have a large population of young people. For example, of the current 15 countries with more than 10 million older persons, seven of these are developing countries (See Appendix 2).

However, population ageing also presents social, economic and cultural challenges to individuals, families, societies and the global community. To face the challenges, there are needed new approaches to the way that societies, workforces, social and intergenerational relations are structured⁸.

Demographic and Economic Dependency Ratios

How is ageing likely to impact economically? The answer is that it is likely to impact in such way through two interrelated dependency ratios: demographic and economic. Demographic Dependency Ratios are one of the most commonly used ratios, which is conventionally defined as the ratio of the “dependent” age groups (0-14 and 65+) to the population in the working age groups (15-64). The latter ratio is expected to change dramatically over the next 50 years compared with past behaviour.

Economic Dependency Ratios. The big problem with the demographic definition of dependency is that it does not accurately reflect the economic burden on the active proportion of the population of working age and in particular on those actually in employment since it is only those who are in employment, which are financing government transfers to the non-active population.

Ageing, aggregate consumption and saving

If the level and structure of individual consumption behaviour were influenced by ageing, the potential growth rate of the economy would be attested. Two channels can be provided. First, according to the life-cycle hypothesis, older people tend to have a higher propensity to consume out of income. Second, changes in the structure of consumption could induce sectorial shifts in the economy, which may affect aggregate productivity gains.

Many household survey data suggest that total consumption displays a hump-shaped profile across age groups⁹, as illustrated in the picture below. These profiles are subject to uncertainties and are not equivalent to saying that the consumption profile is hump-shaped over the life cycle, mainly due to the existence of cohort and time effects. Nonetheless, in the absence of strong life-cycle effects, the impact of ageing on consumption and savings would then be hard to predict. In fact, when the age-income profile is more hump-shaped than consumption, the above observed age consumption patterns are still compatible with some consumption smoothing over the life cycle.

Some statistics of aging in Japan

Declining Birth Rate and Aging Population

The population pyramid of 1950 shows that Japan had a standard-shaped pyramid marked by a broad base. The shape of the pyramid, however, has changed dramatically as both the birth rate and death rate have declined. In 2014, the aged population (65 years and over) was 33.00 million, constituting 26.0 percent of the total population (i.e., one in every four persons) and marking a record high (See Figure 1¹⁰).

 

Figure 1: Changes in the Population Pyramid

 

Median Age of Japan’s population and Age of head of Japanese households

By 2024, the median age¹¹ in Japan will have increased by four years, to 50, and will be more than ten years higher than the median age in the US. Older people are a large and growing segment of Japan’s population, resulting in falling birthrates and a rising mortality rate, which for the first time exceeded the birthrate in 2006. That year, Japan’s population- and the number of savers- stopped growing and actually started to decline.

 

Figure 3: Age of head of Japanese household, millions of households

Figure 2: Median age of Japan’s population, years

 

(1) Projected.

Source: Family Income and Expenditure Survey, 1975-2014, Japan; National Institute of Population and Social Security Research, Japan; US Census Bureau; McKinsey analysis.

Births and Deaths

Population growth in Japan had primarily been driven by natural increase, while social increase played only a minor part. However, in 2005, the natural change rate (per 1,000 population) fell for the first time since 1899, and has since been on a declining trend. In 2013, the natural change rate was -1.9. ¹²

 

Figure 4: Natural Population Change

 

During the second baby boom, the live birth rate was at a level of 19 (per 1,000 population) between 1971 and 1973. Since the late 1970s, it has continued to fall. The rate for 2013 was 8.2 (See Table 1).

The death rate (per 1,000 population) was steady at 6.0 - 6.3 between 1975 and 1987. Since 1988, however, it has been on an uptrend, reflecting the increased percentage of the elderly in the overall population. The death rate was 10.1 in 2013.

Average life expectancy in Japan climbed sharply after World War II, and is today at the highest level in the world. In 2013, the life expectancy at birth was 86.6 years for women and 80.2 years for men. The life expectancy at birth for men exceeded 80 years for the first time, setting a new all-time record for both genders.

Table 1: Vital Statistics

 

Elderly Households

The number of elderly households (private households with household members 65 years of age or over) in 2010 was 19.34 million. They accounted for 37.3 percent of private households. There were 4.79 million one-person elderly households. Among these, there were approximately 2.5 times as many women as men. There were 5.25 million aged-couple households (See Table 2¹³).

 

Table 2: Trends in Elderly Households

 

Actual and projected average savings per Japanese households

As shown in the accompanying Figure 12, 1950-54 birth cohort’s prime savers have more savings than both 1960-64 and 1970-74 birth cohorts’ prime savers, and 1970-74 birth cohort’s prime savers have less savings. As a result, savings rate is declining with each subsequent cohort.

¥1≈ $0.01 (=$0.0082).

Source: Family Income and Expenditure Survey, 1975-2014, Japan; McKinsey analysis.

Actual and projected annual savings of Japanese households

When current retirees were 35, they saved 26 percent of their disposable income. Today, 35-year-old save just 6 percent of their income. This change in the generational savings behavior will strengthen the effects of a decline in the number of savers (See Figure 7).

 

Figure 6: Actual and projected annual savings per Japanese households, ¥ trillion(1) (2014, real).

 

(x.x % Compound annual growth rate); (1) ¥1≈ $0.01 (=$0.0082); (2) Projected. Source Bank of Japan; Economics and Social Research Institute (ESRI), Japan; Family Income and Expenditure Survey, 1975-2014, Japan; McKinsey Global household-financial-wealth model.

Analysis of the problem of ageing and its economic impact in Japan

Declining savings

According to a new research from the McKinsey Global Institute (MGI)¹⁴, during the next 20 years, the financial wealth of Japanese households will stop growing and begin to decline, leaving them with $8 trillion less than they would have if historical growth rates persisted. Wealth will decline not only in total but also for average Japanese households, which will be no wealthier in 2024 than they were in 1997. In other words, the continual improvement in living standards the Japanese have enjoyed during the past half century will end.

Moreover, the heart of the problem is aging of Japan. By 2024, retired households (65 and over) will constitute more than a third of the population and outnumber households in their prime saving years. In other words, elderly households, which tend to save less or actually consume savings, will exceed middle-aged households (30 to 50 years old), which tend to increase their savings, so savings rate will fall drastically (See in Statistics Figure 9 and Figure 10).

Japan’s younger generation and savings

Further contributing to the problem of aging in Japan, the younger generation is saving far less than older generations have. Households led by people born in the 1960s and 1970s have been moving into the prime saving years since 1990.These households have higher disposable incomes than earlier generations did, but they also spend more. The net effect is that this younger generation saves less (See Figure 12); and the savings rate will continue its precipitous decline because many elderly households will start to spend their savings (See in Statistics Figure 13).

Consequently, a savings drought could jeopardize economic growth, that is, a sharp drop in savings will cause the accumulation of wealth to slow and eventually fall. In a nation where households build wealth primarily through new savings rather than through asset appreciation¹⁵, living standards will suffer.

From saver to borrower

Since 1981, Japan has produced enough savings to finance its domestic investment needs and still export savings. In, for instance, 2004 it sent about $170 billion in savings to other countries. ¹⁶ Nevertheless, as Japan grows older and its pool of savings shrinks, it is likely to become a net borrower.¹⁷

In addition, the damage may extend to other countries as well. Japan has historically run large current-account surpluses and exported savings to other nations, such as the United States. As the world’s savers retire, the United States in particular will feel the pinch. In other words, as Japanese funding dries up, the United States will probably be forced to trim its trade deficit and this could have enormous repercussion for the global economy, since strong US demand, paid for with large amounts of foreign lending, has helped fuel economic growth in many countries, including many nations in Asia after the 1997 financial crisis.

Mitigating the impact

There are no easy ways to prevent the impact of an aging population on the country’s economy. Frequently mentioned options, such as increasing immigration or encouraging families to have more children, will have little effect. Immigration represents only a tiny part of population, and children born today would not enter their prime saving years for several decades.

There are two ways to counteract the demographic pressure in a meaningful way: 1) increasing household savings and 2) boosting the returns earned on them. Besides, in Japan, as elsewhere, raising the retirement age in order to extend the period when households are most prone to save would make a sense, given the significant increase in average life spans during the past 50 years. Another helpful step would be to encourage younger Japanese households to save more.

Nevertheless, the most effective change for Japan would be to raise the rates of return on its financial assets. To do so, Japan will have to raise productivity throughout the economy and increase the efficiency of the financial system in allocating capital. Higher productivity brings not only efficiency gains, but also stronger earnings growth and broader growth throughout the economy. Besides, raising rates of return will also require improved financial intermediation so that savings are channeled to the most productive investments.

Raising productivity, growth, and overall financial returns in the lackluster Japanese economy will require basic structural reform, in which Japan must increase competition and spark innovation, enhance legal protection for investors and creditors, and end preferential lending by banks to selected companies.¹⁸

Conclusion

Population aging is one of the most significant trends of the 21^st century¹⁹, which is happening in all regions and in countries at various levels of development. Despite this fact, population aging is occurring in more challenging way in Japan rather than in other countries.

Japanese rapidly aging population and low investment returns are driving a decline in savings and wealth that will dramatically reduce the capital available to fuel the economy. As a result, living standards will fall and growth will slow just as Japan tries to pull itself out of its long economic malaise.²⁰ These trends could also cause a fundamental restricting of global capital flows as the United States and other countries find it more difficult to finance their massive deficits with foreign savings. Nonetheless, if Japan starts to work on the difficult challenges now, it can take some of the sting out of aging.

References

1. Monographs, collective works, collections of scientific papers:

1. The Economic Consequences of Ageing Populations ( A Comparison of the EU, US and Japan)/ K.Mc. Morrow & W. Roeger.- M.: Directorate-General for Economic and Financial Affairs (ECFIN) of the European Commission. –p.74.- 2015.

2. Old age as a privilege of the “selfish ones” Aging and Disease/ Davidovic M, Sevo G, Svorcan P, Milosevic DP, Despotovic N, Erceg. – M. - 1:139–146. -2010.

3. Population Ageing and Development/ Social, Health and Gender Issues with a focus on the Poor in old age/ Number 3. – M.: UNFRA. Valletta, Malta. - 102 p. ISBN: 0-89714-632-8.- 2012.

4. Statistical Handbook of Japan: 2015/Statistics Japan. – M.: Statistics Bureau, Ministry of Internal Affairs and Communications, Japan. – ISSN: 0081-4792. - 196p. – 2015.

5. Financing consumption in an aging Japan: The role of foreign capital inflows in immigration/ Robert Dekle – Working Paper 10781: National Burea of Economic Research. – 2014.

6. The Disappearing Household Financial Surplus: An Analysis of the Recent Plunge in Saving Rate/ Koihi Haji and Yasuhide Yajima. – M.: Economic Research Group, NLI Research Institute. – 2015.

7. The Power of Productivity: Wealth Poverty, and Threat to Global Stability/ William W. Lewis. – M.: University of Chicago Press. – 2013.

8. Reviving Japan’s economy/ Yoshinori Yokoyama. – M.: The McKinsey Quarterly, special edition: Asia revalued. – pp. 19-37. – 2012.

1. Articles from periodicals:

1. Brys K, Vanfleteren JR, Braeckman BP. Testing the rate-of-living/Oxidative damage theory of aging in the nematode model Caenorhabditis elegans. Exp Gerontology.- 42:845–851. -2010.

2. Measuring The Age—friendliness of Cities: A Guide to Using Core Indicators/ World Health Organization Centre for Health Development. - Article: World Health Organization Centre for Health Development. - 2014. -Kobe, Japan.

3. The economic impact of an aging Japan/McKinsey on Economics: An in-depth look at the challenges facing senior managers/ Diana Farrell (director of the McKinsey Global Institute) & Ezra Greenberg (consultant). – Article: McKinsey & Company. - 2011, Sec1:7.

4. Understanding generations: Political economy and culture in an ageing society/ Vincent, John A. –A.: BJS. The British Journal of Sociology. - Vol. 56 (4): 579–599pp. - 2013.

5. Ageing in the Twenty-First Century/ A Celebration and A Challenge/ UNFPA and HelpAge International– A.: UNFPA, New York, and HelpAge International, London. – 190p. – ISBN: 978-0-89714-981-5. –2012.

6. Hayflick, his limit and cellular biology/ Adam J, Rubern and Laura F. Landweber.- A.: Nature Reviews. Molecular Cell Biology/ Adam J, Rubern and Laura F. Landweber. – Vol.1, 5p. – 2013.

7. The impact of ageing on demand, factor markets, and growth: Economics working papers No.420/Joaquim Oliveira Martins, Frédéric Gonand, Pablo Antolin, Christine de la Maisonneuve and Kwang-Yeol Yoo. – A.: ECO/WKP, Vol.(7). – 96p. – 2010.

1. Online resources:

1. http://www.ncbi.nlm.nih.gov/pmc/articles/PMC3617593/

2. http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aIzv9oPDe_.4

3. http://ocw.jhsph.edu/courses/AgingPopulations/PDFs/Lecture1.pdf

4. http://gerontologist.oxfordjournals.org/content/51/4/425.full

Appendices

Appendix 1

Figure 7. Population aged 0-4, 0-14 and 60 or over, 1950-2050

 

Appendix 2

Figure 8. Number of people aged 60 and over: World, Developed and developing countries, 1950-2050

 

1^ BarbaraKingsolver (born April 8, 1955) is an American novelist, essayist and poet.

2^ The Lacuna is a 2009 Barbara Kingsolver's sixth novel, and won the 2010 Orange Prize for Fiction and the Library of Virginia Literary Award. It was shortlisted for the 2011 International IMPAC Dublin Literary Award.

3^ Measuring The Age—friendliness of Cities: A Guide to Using Core Indicators/ World Health Organization Centre for Health Development. - Article: World Health Organization Centre for Health Development.- 2014. -Kobe, Japan.

4^ The economic impact of an aging Japan/McKinsey on Economics: An in-depth look at the challenges facing senior managers/ Diana Farrell (director of the McKinsey Global Institute) & Ezra Greenberg (consultant). – Article: McKinsey & Company. - 2011, Sec1:7.

5^ Old age as a privilege of the “selfish ones” Aging and Disease/ Davidovic M, Sevo G, Svorcan P, Milosevic DP, Despotovic N, Erceg. – M. - 1:139–146. -2010.

6^ Understanding generations: Political economy and culture in an ageing society/ Vincent, John A. –A.: BJS The British Journal of Sociology. - Vol. 56 (4): 579–599pp.- 2013.

7^ Ageing in the Twenty-First Century/ A Celebration and A Challenge/ UNFPA and HelpAge International– A.: UNFPA, New York, and HelpAge International, London. – 190p. – ISBN: 978-

8^ Population Ageing and Development/ Social, Health and Gender Issues with a focus on the Poor in old age/ Number 3. – M.: UNFRA. Valletta, Malta. - 102 p. ISBN: 0-89714-632-8.- 2012.

9^ The impact of ageing on demand, factor markets, and growth: Economics working papers No.420/Joaquim Oliveira Martins, Frédéric Gonand, Pablo Antolin, Christine de la Maisonneuve and Kwang-Yeol Yoo. – A.: ECO/WKP, Vol.(7). – 96p. – 2010.

10^ Statistical Handbook of Japan: 2015/Statistics Japan. – M.: Statistics Bureau, Ministry of Internal Affairs and Communications, Japan. – ISSN: 0081-4792. - 196p. – 2015.

11^ Median age is the age that separates a country or region into two numerically equal groups- it means half the people are younger than this age and half are older.

12^ Statistical Handbook of Japan: 2015/Statistics Japan. – M.: Statistics Bureau, Ministry of Internal Affairs and Communications, Japan. – ISSN: 0081-4792. - 196p. – 2015.

13^ Statistical Handbook of Japan: 2015/Statistics Japan. – M.: Statistics Bureau, Ministry of Internal Affairs and Communications, Japan. – ISSN: 0081-4792. - 196p. – 2015.

14^ The economic impact of an aging Japan/McKinsey on Economics: An in-depth look at the challenges facing senior managers/ Diana Farrell (director of the McKinsey Global Institute) & Ezra Greenberg (consultant). – Article: McKinsey & Company. - 2011, Sec1:7.

15^ Appreciation is an increase in the value of an asset over time. The increase can occur for many reasons including increased demand or weakening supply, or because of changes in inflation or interest rates. This is the opposite of depreciation, which is a decrease over time.

16^ The economic impact of an aging Japan/McKinsey on Economics: An in-depth look at the challenges facing senior managers/ Diana Farrell (director of the McKinsey Global Institute) & Ezra Greenberg (consultant). – Article: McKinsey & Company. - 2011, Sec1:7.

17^ Financing consumption in an aging Japan: The role of foreign capital inflows in immigration/ Robert Dekle. – Working Paper 10781: National Burea of Economic Research. – 2014. And The Disappearing Household Financial Surplus: An Analysis of the Recent Plunge in Saving Rate/ Koihi Haji and Yasuhide Yajima. – M.: Economic Research Group, NLI Research Institute. – 2015.

18^ The Power of Productivity: Wealth Poverty, and Threat to Global Stability/ William W. Lewis. – M.: University of Chicago Press. – 2013. And Reviving Japan’s economy/ Yoshinori Yokoyama. – M.: The McKinsey Quarterly, special edition: Asia revalued. – pp. 19-37. – 2012.

19^ Population Ageing and Development/ Social, Health and Gender Issues with a focus on the Poor in old age/ Number 3. – M.: UNFRA. Valletta, Malta. - 102 p. ISBN: 0-89714-632-8. - 2012.

20^ Financing consumption in an aging Japan: The role of foreign capital inflows in immigration/ Robert Dekle – Working Paper 10781: National Burea of Economic Research. – 2014.

Код для цитирования: Скопировать