Japan: Coping with the Challenges of a Hyper Aging Population

The case discusses the impact of aging population on the Japanese economy. The aging of the population was attributable to declining fertility rates and increasing life expectancy. The major impacts of population aging included an increase in the dependency ratio and a shortage of workforce. An increase in the old age dependency ratio in the country would mean there would be relatively more people claiming pension benefits, putting greater pressure on fewer working-age people to pay more income taxes and thus affecting the latter’s savings rate.

The government would also have to increase its spending on healthcare and medical facilities. In addition to this, an aging population could lead to a shortage of skilled workers, thus pushing up wages and causing wage inflation. All these factors together were expected to lead to a decline in economic growth. Moreover, with the rapid increase in the aging population, these pressures were expected to get further aggravated. There were several options available to policy makers to tackle the economic problems arising from an aging population. Governments could, for example, relax immigration laws so that labor from other countries could enter the country and join the workforce. Some analysts, however, believed that immigration was only a temporary solution. Instead, they favored encouraging women and older people to participate in greater numbers in the workforce.