Japan’s Demographic Lessons for Europe
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%.