How Japan and the US Can Reduce the Stress of Aging
The Japanese are becoming older. Americans are also becoming older. Demographic stress in Japan, measured by the dependency ratio (DR), is currently about 0.64. In the immediate pre-WWII era it was even higher because Japan’s total fertility rate (TFR) was in the 4 to 5 range. As the TFR began to decline in the post-WWII era, the DR fell and hit a nadir of 0.44 in 1990. But further declining fertility and rising life expectancy caused the DR to shoot up after 1995.
In this short note I simulate the DR under various conditions and make comparisons with the US. Japan has experienced a large increase in its DR because its fertility rate is low, its people are long lived and it has little immigration. Fertility is the largest of the contributors in Japan. If there are no demographic changes in Japan, the DR will be 0.88 by 2050. I also assess the role of the “baby boom” of the late 1940s and show that it was compensatory, unlike that in the US. The good news is that healthier older longer-lived people will continue to be employed for many more years than previously and that is one way to reduce demographic stress.
Written for the ESRI-NBER International Conference, 2016, “Aging in Japan: The Impact of the Retirement of Japan’s Baby Boomers.” I thank Yuezhou (Celena) Huo who created and computed the simulations and without whom this paper could not have been written. I also thank Susumu Kuwahara of ESRI for providing data on Japan. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research.