Dealing with an Old Problem

Once when I was flying out of Japan, I noticed that there were three pairs of glasses at different prescription levels available for airline passengers at the customs office. I couldn't help but see them as a sign of a shift in society. When a Japanese person retires, they will still enjoy 70 percent of his previous wages at work, far higher than the salaries of young people just starting their career. This is enviable. The government's taxation and corporate seniority system virtually put the economic output created by the young to directly to the elderly.

Under such circumstances, it's hard for Japanese youth to have any chance of getting ahead. In the 1970s, 32 percent of mid-level division managers in Japanese firms were under 35 years old. This figure dropped to 16 percent in the 1990s. At higher managerial levels, there used to be 25 percent of managers under the age of 45 years, whereas this number dropped to less than 8 percent in the 1990s.

Turning to China

In the past when people analyzed the gloom and doom of the Japanese economy they usually focused on factors such as the changes in exchange rates and the economic policies, but they ignored Japan's demographic structure. It's particularly worth noting that when policies deviate, it's possible they can be corrected in the short term. However, the correction of population issues uniquely imposes much higher long-term costs.  

Today's population policy has its impact on the ratio of youngsters only in 20 or 30 years' time. Were Japan able to use a time machine presumably they would have chosen to launch a fertility policy decades ago.

Japan is now desperately trying to encourage child-bearing so as to fight its way out of the rapidly-aging demographic structure. Meanwhile, as the country's 2010 population census showed, China has a 1.2 fertility rate and is still implementing the one-child policy that limits childbearing. Such a contrast looks particularly glaring.

Perhaps the gaze of Chinese policymakers remains fixed upon the crowds filling up Beijing and Shanghai's subways, and they are concerned that China has an overpopulation problem. The effect of a population policy takes time to show its results. This is why policymakers must keep in mind that the formulation of policy today must correspond to estimates in 20 or 30 year's time.

If China maintains the current fertility rate, its demographic structure by 2040 will be nearly the same compared to Japan today. The series of issues that Japanese society must reckon with are likely to befall us.

Due to the urgency of this, one of my jobs over the past two years has been making demographers better understand the relationship between economic and population structures. Hopefully this will encourage more economists to stand up and call for a change of to China's family planning policy.

The author is a professor of economics at Stanford University and Peking University