In news that briefly diverted attention from the slow demise of Prime Minister Abe’s Abenomics, Japan recently posted its first population decline since 1920 – a trend attributable to a protracted period of low birth rates. This trend threatens to exacerbate the country’s looming demographic crisis, a product of its burgeoning elderly population, in turn placing a potentially economy-crippling burden on the social security system. Neighbouring South Korea is also heading down a similar path, with its population set to peak in 2035.
China, meanwhile, faces the prospect of confronting the same demographic challenges as its Northeast Asian neighbours - its working population maxed-out in 2011. How Japan and later South Korea handle the transition to ‘super-aged’ societies may provide lessons for the Middle Kingdom on how (or how not) to address and adapt to demographic change in the coming decades.
In the years following World War II, the Japanese and South Korean economies benefitted from a low dependency ratio or demographic dividend – in other words, a large working population and comparatively modest percentage of citizens over retirement age. Now, the youthful population pyramid that once helped Japan become the envy of the global economy and gave rise to South Korea’s ‘Miracle on the Han River’ (decades of export-driven double digit growth) is slowly but surely warping into a top-heavy inverted pyramid.
The repercussions of an ageing population are numerous. However the most challenging in Japan’s experience thus far has been the burden on the social welfare system - in 2012 22.8% of GDP was allocated to this area. Meanwhile, from 1995 to 2013 South Korea’s health system sustained a blowout in healthcare expenditure largely attributable to expanding elderly demand, with official figures reporting a near twofold rise from 3.8% to 7.2% of GDP. The fiscal burden on the workforce is compounded not only by the diminishing number of participants, but notably by negative trends in the labour productivity of both nations according to OECD and McKinsey findings.
While many pundits are absorbed in the broader economic ramifications of societal ageing, an egregious social by-product of this demographic phenomenon in Japan has received little press. An alarming trend of criminal activity, mainly shoplifting, among the country’s elderly reflects the shortcomings of the country’s social security system in responding to the needs of its senior citizens. Figures indicate that as many as 35% of all shoplifting offences are committed by those over 60, often tempted by the promise of free food and healthcare offered by the prison system.
A large elderly demographic doesn’t necessarily have to be viewed as an economic burden. A paradigm shift vis-à-vis the traditional retirement age in line with rising life expectancies could go far to mitigate pressure on the pension system. It has been suggested that the Japanese government consider reforming the current pension system, which incentivises retirement, to encourage workers to delay retirement or to continue in the workforce at least in a reduced capacity.
Moreover, the solution to the labour participation issue could indeed lie an area in which Japan and South Korea excel – robotics. Such technology would not only fill the workforce void created by persistently low birth rates, but also assist in raising the participation rate for women – South Korea plans to have one robotic device in each household by 2020. Japan is looking to robots to mitigate the estimated rise in health-care worker demand, which is expected to increase from 1.7 million in 2012 to 2.5 million in 2025.
In the Western context a natural response to population decline would be to bring in more immigrants. Yet this is easier said than done for the Northeast Asian nations – ethnic homogeneity and unity have beget an indelible sense of exclusivism in the societies of Japan and South Korea. Negative social attitudes towards immigration are particularly salient when it comes to unskilled workers from developing countries. Notwithstanding the potential economic benefits, increased immigration would prove politically unpopular and potentially serve as a catalyst for widespread social discord.
The Chinese government has likely been keeping a keen eye on domestic developments in its Northeast Asian neighbours - it has already begun working towards extenuating the anticipated societal burden of an ageing population. China’s first move was to repeal the One-Child Policy, permitting two children per household, a long-term strategy aimed at shoring up the working population in a generation’s time. As pointed out, Chinese social policy makers will also have the luxury of being able to observe how neighbouring governments address societal ageing holistically and implement the most successful initiatives into their own policies.
Although technology can help, how adroitly the big three economies of Northeast Asia address their present and future demographic challenges is very much dependent on their ability to re-shape existing social paradigms. The transformation of collective attitudes towards elderly workforce participation, women in the workplace and the societal acceptance and integration of unskilled foreign workers will be some of the more critical tasks facing policy makers.
Michael Parker is the East Asia Fellow at Young Australians in International Affairs.
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