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News Release

The Impact of Population Aging on the Japanese Economy
- Assessing the Risk of a Decline in the Economic Growth Rate -

July 08, 2005

Overview

As its population ages and the decline in the population of productive age accelerates, a risk has emerged that Japan's economic growth rate will slow. However, a breakdown of the economic growth rate into growth of volume of labor input and growth of labor productivity, suggests that it will be possible to maintain a solid growth rate at least until 2025.

If the structure of employment remains unchanged, volume of labor input is set to decline at an average annual rate of 0.64% until 2025, but by (i) making use of the unused labor capacity that has accumulated owing to the prolonged period of economic stagnation since the collapse of the bubble economy, (ii) harnessing the outstandingly high will to work shown by senior citizens, which is far higher than in the United States or European countries to boost employment and (iii) raising the employment ratio among women in their 30s to a level comparable to those seen in Europe and the United States, it should be possible to keep the average annual rate of decline to 0.18%. So far, at least, neither cross-section data by prefecture nor time series data for labor productivity suggest a causal relationship between population aging and a decline in labor productivity.

This analysis suggests that, even with its population of productive age declining as a result of population aging, it should be perfectly possible for Japan to sustain an economic growth rate approaching 2% per annum. If anything, given that the average annual growth rate since 1990 has been 1.4%, it is possible that the growth rate will actually rise. Moreover, maintaining economic growth as the population begins to decline may actually boost per capita income and enhance Japan's "affluence".

To realize this scenario, the government will need to implement measures to help raise labor productivity and the employment rate, which hold the keys to maintaining the economic growth rate.

For more information on the content of this report, please contact: Hideki Matsumura the Japan Research Institute, Limited.

Tel: 03-3288-4524
E-mail:matsumura.hideki@jri.co.jp

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