The economic implications of an aging population have been extensively researching on with most models establishing a clear link between productivity and the age of the labour force of a country. Braun & Joines (2015) state that Japan has the highest percentage of an aging population when compared to the other countries who initially made up the 6 groups of most industrialized countries. A direct result of the aging population was the increase in the net government debt whereby Japan experienced a sharp rise in the government’s debt from 8% at the end of 1990’s financial year to 150% of its GDP in 2012 (Braun & Joines, 2015). The situation is still evolving with researchers identifying that the dependency ratio due to old age in Japan is set to increase to above 87 percent. This means that the government will spend more in yearly social expenses as opposed to investing in economic opportunities for the future.
Another implication of this high number of old age individuals is the need for better policies to combat the rising imbalance in the countries labour productivity and social expenses for the old (Hara, 2014). In 2004, Japans government passed legislation to implement a steady rise of the contributions towards one’s pension schemes (Dekkers, 2014). With projections estimating that Japan’s problem with an aging population is only set to worsen, the policy to increase pension rates helps in reducing the government’s social expenditure while providing much-needed funds for investment. A policy change that is actively pursued by the government of Japan is in reducing gender barriers that limit the chances of women securing equally paying jobs as those of the men (Baldwin, & Allison, 2015). Current policies in the Japanese society allow women to work in flexible terms that allow them to work part-time while also caring for their families. This is largely unproductive as the full potential of Japanese women is not fully utilized despite the reduction in the age-appropriate labour pool.
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"Aging Population in Japan".
A country’s labour force plays a critical in the economics of the country. As a result of Japan’s aging population, its labour force has become severely affected over the last few years. The projection also confirms that a significant portion of the current labour force will be reduced by 2030 (Yoshino & Taghizadeh-Hesary,2017). The aging population and the relatively low fertility in the Japanese population mean that the country lacks adequate replacements for the individuals. As a consequence, the government relaxed its retirement age limit and instructed institutions to allow individuals wishing to work past their retirement age. Baldwin & Alison (2015) argue that this would negatively impact the policies that have been pursued by the government in streamlining the labour markets such as the one to allow for increased productivity from women.
A negative implication of the reduced labour markets is in the growing dependence of the Japanese government on foreign workers to take care of its aging population. This dependence has the effect of further constraining the economic growth of the country as working immigrants would exporting their earnings to their countries of origin as opposed to spending the money they have earned in Japan. The outflow of money will have a negative impact on the country’s economic growth as capital that would have been reinvested in the country’s economy is exported by immigrant workers. This can be attributed to the government’s strict stand against immigration despite the shortage of skilled labour in the health and information technology sector (Yoon et al.,2014). The current immigration policies have seen the Japanese government negotiate with Indonesian and Pilipino health workers however the limited number of immigrants who are successfully accepted has not result in a significant difference in the health provision for the elderly.
