Impacts of Population Aging on Economic and Social Factors

Until two decades ago Japan had been regarded as a relatively "young country" among OECD countries. The aging of the population has become accelerated since then. The proportion of the elderly (65 years old and over) to the total population increased from 7% in 1970 to 15.4% in 1997. According to an estimate by the Ministry of Health and Welfare, the proportion will increase to 28% in the 2020s (See Chart 12). This proportion is much higher than that of the present "aged countries." For example, the proportion of Sweden, one of the countries with a large proportion of elderly people, is around 18%.

The aging of the population will cause at least four problems related to social security.
(1) A fall in labor supply and an increase in the welfare dependent ratio.
(2) A fall in the savings ratio.
(3) Unfavorable impact on economic growth.
(4) A strain on social security funds.

Labor Supply

The growing productive-age population began to decrease in 1996. Combined with the falling trend in average working hours mentioned above, the total supply of labor in terms of man-hours declines notably from 1996 (See Chart 13).

This historical change in labor supply will seriously affect economic growth and the welfare dependent ratio (as a percentage ratio of cost-bearers), which in turn will affect the social security costs/national income ratio.

Influences on Savings

Lifecycle hypothesis assumes that the private savings ratio will decrease as social security develops. The population aging itself entails the decline of savings ratio if the savings ratio of the elderly is lower than that of workers. Chart 14 shows that the household savings ratio (private savings divided by disposable income) that peaked in 1973 began to develop a decreasing trend after 1975. Though it is difficult to prove econometrically, it is not a mere coincidence that the savings ratio began to develop a decreasing trend just after the "First Year of Welfare."

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