Opinion

Edward Hadas

The demographic effect

Edward Hadas
Jan 23, 2013 15:26 UTC

The populations of many countries are declining in a time of peace and prosperity. That unprecedented and basic change in society must indicate something, but what? The experience of Japan, where the trend is most advanced, provides some hints.

Until about 1950, Japan followed the once universal pattern of population increasing along with incomes. Then the birth rate began to decline. By around 1970, the birth dearth began; from then on there have been too few babies to keep the population constant. For the past two decades, roughly 140 children have been born to every 100 women. At that rate, each generation is about a third smaller than the last, although lengthening life expectancies kept the total Japanese population from falling until 2011.

One effect of this demographic transition is undeniable. It has sharply reduced the size of the dynamic core of the economy: the people who are starting their adult life. They bring ambition, flexibility and a strong desire for new housing and amenities. In Japan, this group, the people between 20 and 25 years old, is a quarter smaller now than in 2000, and is set to decline by another 15 percent over the next two decades. Demographic factors are not the only reason Japan’s GDP growth has been slow – 0.6 percent annual rate over the last decade – but they have played a major role.

Still, the top heavy age pyramid – far more old than young people – has not obviously crippled the Japanese economy. In the last decade, GDP growth per working-age person has increased at a respectable 1.1 percent annual rate. It is probably unrealistic to expect a much faster pace. Unlike the ageing societies of Korea and China, Japan cannot produce and invest more to catch up with the richest nations; it is already a world leader. In comparison to European nations with equally low birth rates, Japan has far fewer immigrants to contribute to GDP.

Indeed, the demographic surprise in the Japanese economy is probably not that growth has been slow, but that it has not been slower. The workforce might well be expected to become less productive and innovative as its ages and shrinks. But the only sign of that in Japan, and in Europe, is a loss of global market share in the fastest moving consumer-facing high tech sectors – and demographic stultification is not the only plausible explanation for that retreat. It seems that modern economies can work remarkably well with relatively few young people.

7 billion reasons why Malthus was wrong

Edward Hadas
Nov 2, 2011 12:35 UTC

By Edward Hadas The opinions expressed are his own.

A child is born. For almost every parent, everywhere and always, the entry of a new person into the world is a welcome wonder. But economists generally have a different outlook on births. They prefer hard numbers to hope. And this week they have a big demographic number to discuss: the world’s population has just reached 7 billion.

When economists talk about demographics, Thomas Malthus usually comes up. The early 19th century British thinker decided (without providing any reasons) that people would always have more children than the physical world could possibly support. Population growth would always be restrained by death from want. At the time he wrote, the world’s population was about 1 billion. By the 1960s, the population had increased to about 3 billion people, and Malthus’s gloom was often cited. Some ecologists then claimed that the combination of industrial production and overpopulation would inevitably lead to environmental catastrophes – and many deaths from want.

And yet up to now, Malthus has been wrong, in two basic ways. First, human resourcefulness has proved much greater than he imagined. The economic story of the last two centuries has been one of increase – of people and production. The most recent years have been particularly impressive. The 135 million births this year will be almost 30 percent more than 50 years ago, according to UN data. Those lives will be longer; this year’s children can look forward to an average 68 years of life, 18 more than newborns a half-century ago. And the current crop will receive much more of the goods of industrial prosperity, from clean water and adequate food to free education and mobile phones.

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