Japan Old Age Dependency Ratio
Channing Rupnick
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People today are living longer than ever before, while birth rates are dropping in the majority of OECD countries. Such demographics raise the question: are current public social expenditures adequate and sustainable? Older workers play a crucial role in the labour market. Now that legal retirement ages are rising, fewer older workers are retiring early, but at the same time those older workers who have lost their job after the age of 50 have tended to remain in long term unemployment. What can countries do to help? How can they give older people better work incentives and opportunities? These reports offer analysis and assessment on what the best policies are for fostering employability, job mobility and labour demand at an older age.
Currently, Japan has the highest old-age dependency ratio of all OECD countries, with a ratio in 2017 of over 50 persons aged 65 and above for every 100 persons aged 20 to 64. This ratio is projected to rise to 79 per hundred in 2050. The rapid population ageing in Japan is a major challenge for achieving further increases in living standards and ensuring the financial sustainability of public social expenditure. However, with the right policies in place, there is an opportunity to cope with this challenge by extending working lives and making better use of older workers' knowledge and skills. This report investigates policy issues and discusses actions to retain and incentivise the elderly to work more by further reforming retirement policies and seniority-wages, investing in skills to improve productivity and keeping up with labour market changes through training policy, and ensuring good working conditions for better health with tackling long-hours working culture.
Based on the latest results from the Population Census of Japan and the Vital Statistics of Japan, the National Institute of Population and Social Security Research in Japan (IPSS) has conducted a new national population projection exercise (Population Projections for Japan). This is the 15th release of national population projections by the Institute, including the period before the integration of the Institute of Population Problems and the Social Development Research Institute.
The Population Projections for Japan project the size and structure of the population into the future based on assumptions on future fertility, mortality, and international migration levels. Given that future changes in fertility, mortality, and international migration cannot be known with certainty, the IPSS projections provide a well-defined range of likely future population developments by computing variants based on alternative scenarios.
The projections cover the total population living in Japan, including non-Japanese residents. This is the same framework that is used by the Population Census of Japan. The period of the projections begins with the 2015 Population Census and continues until 2065, projecting the population as of October 1 for each year. Additionally, we extended the population calculations up to 2115 and added these as long-range auxiliary projections.
The method of projection is as follows: we set assumptions on individual components of population dynamics, i.e., birth, death, and international migration, by sex and age, and projected the population demographic trends by sex and age into the future using the cohort component method. Assumptions are made based on actual statistics for each component using the demographic method. (For further details, refer to section "III. Summary of the Method Used for Population Projections".)
The Population Projection for Japan is based on three alternative assumptions about future changes in both fertility and mortality (a low, medium, and high variant of each), resulting in a total of nine projections?one for each combination of these variants. Hereafter, the outline of the results of the three projections combining the three assumptions on fertility with the medium variant assumption for mortality will be presented first, followed by an outline of the results of the three assumptions of fertility combined with the high- and low-mortality assumptions. In the following descriptions, each projection is referred to by the combination of its respective fertility and mortality assumptions, e.g., medium-fertility (medium-mortality) projection.
According to the 2015 Population Census, which serves as the base year for these projections, the total population of Japan in that year was 127.09 million (total population including non-Japanese residents).
In comparison with the results for the previous projection (2065 by the long-range auxiliary projection), the total population increased by 6.72 million from 81.35 million to 88.08 million, and the year that the total population decreased to below 100 million was delayed by 5 years from 2048 to 2053 for the medium-fertility variant.
Looking at the different trends in the number of children in the high- and low-fertility projections, this age group is expected to be on the decline even in the high-fertility projection and will reach 11.59 million by 2065 (see Table 1-2). The low-fertility projection leads to a more rapid decline in the size of this age group; it is projected that this demographic group will shrink to below 10 million by 2044, and eventually decrease to as little as 6.84 million by 2065 (see Table 1-3).
Similarly, in the high-fertility projection, the population share of the working-age group shows a constant decline from the start of the projection period, reaching 52.2% by 2065, just one percentage point higher than the result of the medium-fertility projection.
In the low-fertility projection, the proportion of this age group out of the overall population will be 50.5% by 2065, and about one percentage point lower than the projection based on the medium-fertility assumptions.
A comparison of the results of the high- and low-fertility projections show that the variation in the aging trend, brought about by different assumptions of fertility rates, amounts to a difference of 1.7 percentage points by 2040, from 36.2% in the low-fertility projection to 34.5% in the high-fertility projection. Thereafter, this difference grows wider, resulting in a difference of 5.6 percentage points by 2065, where the low-fertility figure is 41.2% as opposed to the high-fertility figure of 35.6% (Figure 1-2).
As already noted, the elderly population will peak at 2042 and decrease thereafter. Nevertheless, according to both the medium- and low-fertility assumptions, the proportion of the elderly generation will continue to rise throughout the coming 50 years. This occurs because the child and working-age populations decrease faster throughout the period covered by the projections than the elderly age group.
In comparison with the results for the previous projection (2065 by the long-range auxiliary projection), the elderly population increased by 0.94 million from 32.87 million to 33.81 million and the share decreased by 2.0% points from 40.4% to 38.4% for the medium-fertility variant. The elderly population will peak by 2042. In the previous projection, the size of the elderly population is 38.78 million, whereas in the current projection the population size will be 39.35 million by 2042.
The (Total) age dependency ratio is an index that provides a rough indication of the level of support burden that is placed on the working-age group, through comparison of the relative size of the young-age population and old-age population groups with that of the working-age group. The old-age dependency ratio (the percentage of the old-age population relative to the population of the working-age group) based on the medium-fertility projection is projected to increase from 43.8 (an average of 2.3 workers supporting one senior resident) as of 2015 to 50.3 (two workers supporting one senior resident) by 2023, and eventually reaching 74.6 (only 1.3 workers supporting one senior resident) by 2065 (see Table 1-4). In contrast, the young-age dependency ratio (the percentage of the young-age population relative to the working-age population) was at the level of 20.6 (an average of 4.8 workers supporting one child) as of 2015, and will remain in the range of 19 to 21 in the future. Despite the decrease in the young-age population due to low fertility, the young-age dependency ratio is not expected to decrease below a certain level, because the working-age population will also simultaneously shrink in size.
The value obtained by adding the young-age dependency ratio and the old-age dependency ratio is referred to as the total age dependency ratio, and is used to indicate the degree of burden placed on the working-age population to support the entire young-age/old-age population. According to the medium fertility projection, under the shrinking working-age population, the total age dependency ratio is expected to increase from 64.5 as of 2015, to 80.5 by 2037, and will eventually reach 94.5 by 2065.
The age dependency ratio based on the high-fertility projection will initially follow a trend that is higher than that of the medium-fertility projection, because the young-age dependency ratio will be larger. However, the ratio of the high-fertility projection will show a decrease below that of the medium-fertility projection by 2047 and beyond, and is expected to reach 91.7 by 2065. Conversely, the age dependency ratio based on the low-fertility projection will initially maintain a lower level than that of the projections based on the medium-fertility projection, but the relationship will eventually reverse by 2047, and will reach 98.0 by 2065.
The population pyramid in Japan has significant irregularities due to acute fluctuations in past numbers of live births. For example, there was a decrease in the number of live births from 1945 to 1946 in line with the end of World War II, an increase known as the first baby boom from 1947 to 1949, a subsequent decrease from 1950 to 1957, and a sharp single-year drop in 1966 which corresponded to a period in the Chinese sexagenarian cycle that, owing to traditional beliefs, is accompanied by a sharp decline in birthrates. This was followed by a subsequent increase referred to as the second baby boom from 1971 to 1974, and a steady decrease thereafter (see Figure 1-5 (1)).
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