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Demographic Changes in Japan and their Macroeconomic Effects

Author

Listed:
  • Takashi Kozu

    (Bank of Japan)

  • Yoshiko Sato

    (Bank of Japan)

  • Masakazu Inada

    (Bank of Japan)

Abstract

This paper examines the effects of demographic changes in Japan upon the social security system, labor market, household savings rate, and economic growth. The results are, firstly, to confirm, in the face of these demographic changes, (1) the increasing difficulty of maintaining the current social security system, (2) the decrease in the number of workers, and (3) the gradual decline of the household savings rate. Secondly, calculations based on a simple model show a reduction in the labor input and a slowdown in the accumulation of capital, indicating that the potential macroeconomic growth rate will also undergo a decline. Furthermore, in order to compensate for the decrease in the number of workers that accompanies such demographic changes, we include in the model some extreme conditions on rates of employment for the elderly and for women as well as on immigration and fertility rates. Even under such extreme conditions, it still proves difficult to completely neutralize the negative demographic effects on the potential growth rate.

Suggested Citation

  • Takashi Kozu & Yoshiko Sato & Masakazu Inada, 2003. "Demographic Changes in Japan and their Macroeconomic Effects," Bank of Japan Working Paper Series 04-E-6, Bank of Japan.
    • Handle: RePEc:boj:bojwps:04-e-6
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    File URL: http://www.boj.or.jp/en/research/wps_rev/wps_2004/data/wp04e06.pdf
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    References listed on IDEAS

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    1. Fumio Hayashi & Edward C. Prescott, 2004. "The 1990s in Japan: a lost decade," Chapters, in: Paolo Onofri (ed.), The Economics of an Ageing Population, chapter 2, Edward Elgar Publishing.
    2. Kamada, Koichiro & Masuda, Kazuto, 2001. "Effects of Measurement Error on the Output Gap in Japan," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 19(2), pages 109-154, May.
    3. Mr. Hamid Faruqee, 2002. "Population Aging and its Macroeconomic Implications: A Framework for Analysis," IMF Working Papers 2002/016, International Monetary Fund.
    4. Fumio Hayashi & Edward C. Prescott, 2002. "The 1990s in Japan: A Lost Decade," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(1), pages 206-235, January.
    5. Horioka, Charles Yuji, 1992. "Future trends in Japan's saving rate and the implications thereof for Japan's external imbalance," Japan and the World Economy, Elsevier, vol. 3(4), pages 307-330, April.
    6. Jonathan Coppel & Jean-Christophe Dumont & Ignazio Visco, 2001. "Trends in Immigration and Economic Consequences," OECD Economics Department Working Papers 284, OECD Publishing.
    7. Britta Hoem, 2000. "Entry into motherhood in Sweden," Demographic Research, Max Planck Institute for Demographic Research, Rostock, Germany, vol. 2(4).
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    Cited by:

    1. Ichiro Muto & Takemasa Oda & Nao Sudo, 2016. "Macroeconomic Impact of Population Aging in Japan: A Perspective from an Overlapping Generations Model," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 64(3), pages 408-442, August.

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    More about this item

    Keywords

    Demographic Changes; Social Security; Saving Rate; Labor Market; Growth Rate;
    All these keywords.

    JEL classification:

    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J10 - Labor and Demographic Economics - - Demographic Economics - - - General
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure

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