The Economist and Japan

You know, this has been obvious for some time now. Oh well, better late than never. One small detail, I have no accurate idea how many immigrants per year Japan would have to accept to maintain even it's current growth, the UN estimated tha scale of the problem as follows: This scenario keeps the ratio of the working-age population to the retired-age population at its 1995 level of 4.8. In order to keep this level of potential support ratio, the country would need 553 million immigrants during 1995 through 2050, or an average of 10 million immigrants per year. Under this scenario, the population of Japan is projected to be 818 million in 2050 and 87 per cent of them would be the post-1995 immigrants and their descendants. As nothing even remotely like is likely to happen, unfortunately we can only assume and imagine the worst. On increasing female participation, this is fine, and I am infavour, but do bear in mind that most assessments also assume the Japanese family model being the basis for an old age support system laking some real pillars: but that assumes that the women are staying at home. As this is definitely not a 'new economy' phenomenon, I assume here you can't have your cake and eat it.

JAPAN is entering a crucial lap in its economic race against time. The good news is that, as it makes the turn into 2004, the economy is riding the momentum it built up during a moderate expansion last year. Real GDP grew by an estimated 2.6% in 2003, according to The Economist's latest poll of forecasters, and is expected to rise by another 2% this year. The bad news, however, is that even though the economy has sped up for a bit, Japan's runaway demographic trends still threaten to leave it in the dust.

The population of 127m barely changed in 2003, rising by fewer than 100,000. The number of births continued its steady slide, with only 1.12m babies being born last year. Japan's 1.03m recorded deaths, meanwhile, were its highest number since 1947. Within only a year or two these two trends are expected to cross, and the population will begin to fall. The combination of a shrinking population and an increasingly elderly one will have a growing impact on everything from demand for goods and services, to public finances, to the structure of the workforce. Within five years, for example, Japan's universities expect to have more available university spaces than applicants.

The effects of these trends on the workforce could be especially dramatic. Although the overall population is just beginning to peak, the number of people in their working years (between 15 and 64 years old) has been falling since 1995, when it reached 87m. The National Institute of Population and Social Security Research forecasts that this age group will shrink to 70m in 2030, and to as few as 54m in 2050. Meanwhile, the number of people aged 65 and over is expected to rise from less than one-fifth to one-third of the population. If Japan cannot find some way to slow this trend, or to mitigate it through new sources of labour or faster productivity growth, it will eventually take a heavy toll on the economy.

One way to bolster the workforce would be through immigration, a prospect many Japanese find unsettling. A report published this week by Robert Feldman, Morgan Stanley's chief economist in Tokyo, does not offer them much comfort. Mr Feldman reckons that, on current trends in demography and productivity, Japan will need to import 5m foreign workers over the next decade (not counting their dependants) just to maintain the current anaemic rate of improvement in living standards. “The numbers of required immigrants are so large”, wrote Mr Feldman, “that they recast the entire debate.”

Japan could also increase its workforce in other ways, such as by making it easier for women and the elderly to take productive jobs. Progress on this front, however, seems much too slow when compared with the speed at which the labour force is shrinking.

If labour reforms and productivity do not keep pace with the demographic challenge, one way in which living standards will suffer is through a squeeze on the social-security system: a daunting prospect in the land of the rising debt ratio. The ruling coalition worked out a compromise last month to raise premiums from 13.6% to 18.4% of employees' pay, while cutting benefits from 59% to 50% of average salaries, over the next decade-and-a-half. It is expected to introduce a bill along these lines in February. Even these changes will not be enough to close the pensions gap without faster economic growth, which will become harder to achieve as tax burdens rise. Japan's reformists might want to pick up the pace.