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Poor old Japan: Low unemployment, less crowded, cheaper housing - by Leith van Onselen

"For more than a decade, the Productivity Commission has debunked the common myth that immigration can overcome population ageing. [...] If Australia was truly a ‘clever’ country like Japan, it would manage population ageing by: 1) better utilising existing workers, given there is significant spare capacity in the labour market; and 2) where required resort to technological solutions. The last thing that Australia should be doing is running a mass immigration program which, as noted many times by the PC, cannot provide a long-term solution to ageing, lowers wages, and places increasing strains on infrastructure, housing and the natural environment." This article first published at https://www.macrobusiness.com.au/2017/06/poor-old-japan-low-unemployment-less-crowded-cheaper-housing/#comments

For more than a decade, the Productivity Commission has debunked the common myth that immigration can overcome population ageing. For example:

  • PC (2005): Despite popular thinking to the contrary, immigration policy is also not a feasible countermeasure [to an ageing population]. It affects population numbers more than the age structure”.
  • PC (2010): “Realistic changes in migration levels also make little difference to the age structure of the population in the future, with any effect being temporary“…
  • PC (2011): “…substantial increases in the level of net overseas migration would have only modest effects on population ageing and the impacts would be temporary, since immigrants themselves age… It follows that, rather than seeking to mitigate the ageing of the population, policy should seek to influence the potential economic and other impacts”…
  • PC (2016): “[Immigration] delays rather than eliminates population ageing. In the long term, underlying trends in life expectancy mean that permanent immigrants (as they age) will themselves add to the proportion of the population aged 65 and over”.

In a nutshell, trying to overcome an ageing population through higher immigration is a Ponzi scheme.  It requires ever more immigration, with the associated negative impacts on economic and social infrastructure, congestion, housing affordability, and the environment.

The obvious question that follows is, if immigration is not the solution to the ‘problem’ of population ageing, then what is? Enter Japan, whose population is both shrinking and ageing quickly:

And whose labour market is tight, with Japan’s unemployment rate recently hitting a 22-year low of just 2.8% (if only Australia was so lucky!):

Rather than open the immigration spigots for a short-term fix, and in the process crush-load infrastructure and housing, Japan has instead taken the high tech route of engaging in automation.

Population boosters in Australia often label Japan an ‘economic basket case’ due to its ageing population. But the facts do not back this assertion up. In addition to having an unemployment rate that Australian workers could only dream of, as well as a relatively affordable housing market, Japan’s GDP growth in per capita terms has been highly respectable, as it has been for most other nation’s with declining populations:

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These facts have not been lost on the Center for Economic and Policy Research (CEPR), which has penned the following rebuke to the clam that Japan is facing a ‘dismal’ future due to population ageing:

The NYT featured yet another piece on a country, in this case Japan, facing a future with a lower population. The piece warns that it will be difficult to maintain economic growth with a declining population and that Japan’s labor shortage would get more severe.

This doesn’t sound like too bad of a story to people familiar with economics. Thus far the labor shortage has not been serious enough to cause wages to rise in Japan. If it eventually does get more severe and wages do rise then it just would mean that some of the least productive jobs would go unfilled. For example, perhaps Tokyo would no longer pay workers to shove people into overcrowded subway cars.

As far as GDP growth, economists usually care about GDP per capita as a measure of living standards, not total GDP. This is why Denmark is a richer country than India, even though India has a much larger GDP…

It is worth reminding readers that growth in productivity swamps the impact of demographics. If Japan can sustain a 1.5 percent pace of productivity growth, then output per worker hour would be 80 percent higher in forty years. Even in a very extreme demographic change, say going from three workers per retiree to 1.8 workers per retiree, this would still allow for a 17 percent rise in average living standards over this period… And this does not account for the benefits from less strain on the infrastructure and the natural environment. Nor does it take account of the lower ratio of dependent children to workers…

Presumably the folks who are concerned about the job-killing robots expect that productivity growth will be considerably more rapid.

We also shouldn’t forget that economists at MIT recently found that there is absolutely no relationship between population ageing and economic decline. To the contrary, population aging seems to have been associated with improvements in GDP per capita, thanks to increased automation:

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If anything, countries experiencing more rapid aging have grown more in recent decades… we show that since the early 1990s or 2000s, the periods commonly viewed as the beginning of the adverse effects of aging in much of the advanced world, there is no negative association between aging and lower GDP per capita… on the contrary, the relationship is significantly positive in many specifications.

If Australia was truly a ‘clever’ country like Japan, it would manage population ageing by: 1) better utilising existing workers, given there is significant spare capacity in the labour market; and 2) where required resort to technological solutions.

The last thing that Australia should be doing is running a mass immigration program which, as noted many times by the PC, cannot provide a long-term solution to ageing, lowers wages, and places increasing strains on infrastructure, housing and the natural environment.

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Comments

It is interesting that the GDP per capita graph shows a 14% rise in Australia (and a 43% rise in Estonia which has negative population growth). GDP per capita supposedly a measure of individual wealth does not as far as I know, show how well this is actually distributed throughout the population. Obviously it is a better indicator of how well well off a nation's population might be than is GDP but it could be that a few people are becoming mega- wealthy and others are not benefitting. Furthermore, the most important factor in a nation's well-being is "quality of life". The sorts of things which determine this, in my view, are amount of leisure time, ease of commuting to work, access to nature and other amenity such as sunshine, access to facilities and areas for leisure activities such as sport and recreation, access to affordable medical and other therapeutic as well as educational services. It is my perception that most of these factors have declined in the period mentioned, 2003-15.