Japan – Going Out of Business…

Posted On March 4, 2016

Note from Cam: Gerald Bierling is an invaluable resource to my work. He is a statistics and demographics professor at McMaster University in Hamilton, Ontario and gathers most of our research for us. I sent him the link to the BBC article and asked him if he would draw some conclusions in a blog which you’ll find below.

Not many children are born in Japan. In fact, so few that the population shrunk by nearly one million people in the past five years. This means there are more people dying there than being born, by a big margin. This was reported in a recent BBC story that caught our eye. How did this happen? What impact will this have on the workforce? And will the same thing happen in the United States?

For a country’s population to stay the same it needs a total fertility rate of 2.1. On average every female needs to have 2.1 children over her life-time for the total population to remain the same (ignoring immigration patterns). This magic value of 2.1 is what demographers call the population replacement rate. Japan has not had that since the mid-1970s – and it is currently only 1.4. The result is that there are now more deaths in Japan than there are births, by roughly a ¼ of a million. As well, their population is much older now. For example, in 1975 only 8% of Japanese were age 65 or older. In 2014 almost 26% of the population is aged 65 years or older!

The answer to the second question (the impact on the workforce) is that the workforce will typically age along with the population. There will be relatively fewer people in what economists call the prime workforce ages of 25-54. This too is what is happening in Japan – in 1975 around 44% of the Japanese population was between the ages of 25-54; in 2014 that decreased to roughly 39%. In absolute terms, the total number of people in the prime workforce age group has been decreasing since the mid-1980s.

So the workforce of the future (or the present, in Japan’s case) will be more generationally diverse. Until every job is automated, employers need workers. And if there are fewer people aged 25-54 employers will naturally try to retain older workers. Economists generally agree that in this type of scenario – of both an aging and decreasing population – economic growth depends on both retaining older workers, and increasing the productivity of all workers (which is often done by increasing the use of technology). How will this play out in the workplace?

Will younger workers feel frustrated with co-workers from older generations who traditionally don’t adapt easily or quickly to technological innovations?

Will older workers feel threatened by the presence of younger workers who, in turn, feel that their careers are stymied by older workers who won’t retire?

And will employers be able to integrate workers of different generations, who often have different expectations, goals, and outlooks?

Maybe this last question doesn’t apply so much to Japan, in which younger generations are often noted as having more of a deferential attitude towards older generations. But what about in the United States, where generational differences are more clearly on display?

First of all, the population of the U.S. is not declining. In fact, the latest population projections done by the U.S. Census Bureaus indicate that the population will continue to grow until at least 2060. The total fertility rate is only slightly below the replacement rate (around 1.9), and there are currently around 1.4 million more births than deaths each year.

But … the population and workforce is projected to age over the next few decades. In 2016 just over 15% of the population is aged 65+; in 2026 that will increase to just over 19%. While this is not nearly as high as it is in Japan, the trend is clear. And there is already evidence that people are working longer – perhaps due to concerns over Social Security, big mortgage debt, and recent personal financial losses in the stock market. So the U.S., demographically speaking, is in a better position than Japan. But even in the U.S. the generational diversity of the workforce will increase. And this means that similar challenges lie ahead.

Categories: Generations