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Home > Research and Studies > Bank of Japan Working Paper Series, Review Series, and Research Laboratory Series > Bank of Japan Working Paper Series 2004 > Demographic Changes in Japan and their Macroeconomic Effects

Demographic Changes in Japan and their Macroeconomic Effects *1

September 2003
Takashi Kozu *2
Yoshiko Sato *3
Masakazu Inada *4

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  • *1 In producing this paper, we have had the benefit of valuable comments from Shin-ichi Fukuda (Tokyo University), Yukinobu Kitamura (Hitotsubashi University), Takashi Oshio (Tokyo Gakugei University), and many of the staff of the Bank of Japan. We would like to offer them our most sincere thanks. Any remaining errors are those of the authors. The opinions expressed in this paper are the authors' own and do not represent the official position of the Bank of Japan or of the Research and Statistics Department.
  • *2 Formerly Research and Statistics Department, currently Bank Examination and Surveillance Department, Bank of Japan, e-mail: takashi.kouzu@boj.or.jp
  • *3 Research and Statistics Department, Bank of Japan, email: yoshiko.satou@boj.or.jp
  • *4 Formerly Research and Statistics Department, currently Institute for Monetary and Economic Studies, Bank of Japan, email: masakazu.inada@boj.or.jp

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.

JEL Classification Number:
E17, E21, H55, J10, J21

Keywords:
Demographic Changes, Social Security, Saving Rate, Labor Market, Growth Rate