Japan’s Demographic Lessons for Europe

Nov 8, 2017 Daniel Gros

Contrary to popular belief, Japan has been extraordinarily successful in achieving economic growth, given its rapidly aging population and lack of inflation. For Europe, where the demographic future looks a lot like Japan's past, there is much to be learned from this experience.

BRUSSELS – Demography is not destiny, at least not entirely. Over centuries, policy can affect fertility decisions, and migration can transform a country, as the experience of the United States shows. Over shorter time horizons, however, demographic trends must be taken as given, and can have a profound impact on growth. Yet demographic factors are often neglected in economic reporting, leading to significant distortions in assessments of countries’ performance. Nowhere is this more apparent than in Japan.

With real output – the key measure of economic performance – having risen by only about 15% since 2000, or less than 1% per year, Japan easily seems the least dynamic of the worlds’ major economies. But given Japan’s demographics – the country’s working-age population has been shrinking by almost 1% per year since the start of this century – this result is remarkable.

In fact, Japan’s growth rate per working-age person was close to 2% – much higher than in the US or in Europe. Though the US economy grew more than 35% since 2000, its working-age population also grew markedly, leaving the annual growth rate per working-age person at only about 1%.

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Alex Aslanidis Nov 27, 2017

"This brings us to a final key lesson from Japan: in a low-growth economy, the debt-to-GDP ratio can quickly spin of out control. Fortunately, it seems that this lesson already has been learned, with the average deficit in the eurozone now amounting to only around 2% of GDP."

Wrong. That's not the final key lesson from Japan. The final key lesson from Japan is that public debt doesn't matter if it's denominated in the domestic currency. Maybe fiscal hawks like Gros should awaken to this reality.
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B Wilds Nov 13, 2017

The idea that the way to achieve economic growth is to increase our population is flawed. Simply adding mouths to feed and efforts to merely add new workers to replace those retiring creates additional demand but is shortsighted because it ignores the problem of exploding population growth across the world. The article below focuses on what should be seen as the natural progression of economic growth.

http://brucewilds.blogspot.com/2017/10/economic-transition-reflection-upon.html
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Pierluigi Molajoni Nov 10, 2017

Bravo Daniel, tell it like it is!
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Krishnan Madathil Nov 10, 2017

When population grows, overpopulation is the problem. When it stabilizes, it is demographic decline. You guys really do know how to throw people out of sleep. Japan is rich, clean and could do with fewer people - where’s the problem?
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Yoshimichi Moriyama Nov 9, 2017

Prof. Gros has taught me a different way of looking at the Japanese economy. I found this very instructive.
I did not know adults' diapers and nappies outsell babies'. Steve's comment below is all true.

The Japanese economy is the superstructure like every national economy and the Japanese society is the substructure like everywhere. The superstructure is conditioned and constrained by the sub. The substructre is in danger. A lot of young people work underpaid as irregular workers. They work for long hours, overworked. The wholesome and sound recreation of society, not simply in the physiological but also cultural sense, is threatened.
- Steve Hurst Nov 9, 2017
  
  Yoshi
  The idea of ending in diapers is something that fills me with dread : )
  - Marc Laventurier Nov 10, 2017
    
    So that's what that was. See: https://www.theguardian.com/science/2008/dec/03/fear-smell-pheromone
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Steve Hurst Nov 8, 2017

A remarkable article but not in a good way as it glosses over the very real problems. In fact it is hardly recognisable in its rosey glow.

Japanese researchers recently pinned down the expected date of (Japanese) extinction with a doomsday clock. The date, according to the latest fertility rates, is available here and is not that far in the future -

http://mega.econ.tohoku.ac.jp/Children/index_en_2015.jsp

Currently in Japan adult diapers or nappies outsell baby diapers

One-fifth of all crime committed in Japan is done by the elderly. Most of it is petty theft. As a result prisons have effectively turned into nursing homes. Guards are made to bathe the inmates and help them get dressed, and experts say living conditions are too good to keep recidivism rates down. Many old Japanese seek prison

Japan has the highest rate of centenarians out of any country, with 4.8 per 100,000 people. The US, the country with the most overall, has 2.2 per 100,000.

So many old Japanese fall over a company, Prop, has started manufacture of wearable airbags to try and cushion their fall.

Ubasute is an old Japanese word that translates to "granny dumping," and according to Japanese news sources, it's making a comeback.

One of the main traits of the demographic time bomb is that young people focus a lot of their time on work instead of socializing, largely to keep up economically.
They still want to get married, however, so the compromise they're making is just partnering up with friends.

Long work hours are leading to a rise in cases of karoshi, or "death from overwork."
A report recently, which examined karoshi and its cause of death, found more than 20% of people in a survey of 10,000 said they worked at least 80 hours of overtime a month — a signal of just how desperate young people are for extra income in this demographic timebomb.

If we then look at Europe, and at Germany which is following the same demographic trend but not yet gone Japanese, 3.5 million young migrants per annum would be required to maintain historical demographic balance. This simply is not going to happen. 1 million migrants as a one off event has had the political system frothing at the mouth.

I don't know which is the most terrifying, the future for Japan, and by implication for all of the West at some point, or Mr Gros and his wild misrepresentation of that future. Japan has done well trying to deal with this so far and there are many lessons to learn from Japan but they are not the one Mr Gros imagines.
- Steve Hurst Nov 8, 2017
  
  PS I would add that it is blatantly obvious if young people are suffering from 'death from overwork' and a very severe economic squeeze they will not be saving which Mr Gros seems to think is a perpetual part of the situation. At this point I suggest Alan Greenspan's 2017 comment on productivity is pertinent -
  
  'We have been through a protracted period of stagnant productivity growth, particularly in the developed world, driven largely by the aging of the ‘baby boom’ generation. Social benefits (entitlements in the US) are crowding out gross domestic savings, the primary source for funding investment, dollar for dollar. The decline in gross domestic savings as a share of GDP has suppressed gross non-residential capital investment. It is the lessened investment that has suppressed the growth in output per hour globally. Output per hour has been growing at approximately 1⁄2% annually in the US and other developed countries over the past five years, compared with an earlier growth rate closer to 2%. That is a huge difference, which is reflected proportionately in the gross domestic product and in people’s standard of living.
  
  As productivity growth slows down, the whole economic system slows down. That has provoked despair and a consequent rise in economic populism from Brexit to Trump. Populism is not a philosophy or a concept, like socialism or capitalism, for example. Rather it is a cry of pain, where people are saying: Do something. Help!'
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