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Ageing and the Labor Market in Japan

Problems and Policies

Edited by Koichi Hamada and Hiromi Kato

This book is a concerted attempt by economists to investigate and offer remedies for some of the difficulties associated with an ageing labor market.
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Chapter 3: Labor Force Ageing and Economic Growth in Japan

Masaya Sakuragawa and Tatsuji Makino


* Masaya Sakuragawa and Tatsuji Makino 1. INTRODUCTION In Japan the population will age rapidly over the first half of the twentyfirst century. Fertility has declined over the past quarter century, reaching less than 1.4 in the 1990s, while mortality at older ages is greatly improved in the same decade. The share of the Japanese population that is 65 or over is expected to rise from 11 to 19 per cent over the next two decades. Cutler et al. (1990) simulate the level of per capita consumption in Japan, finding that it is smaller by 15.2 per cent in 2050 than the level that would have been possible in the absence of the demographic shock.1 How should we evaluate their results? Cutler et al. make simulations using the standard growth model with exogenous technological progress.2 Two points are to be noted. First, physical capital deepening is inherent in the standard growth model. It follows that an advance in the ageing population can raise per-worker income through this channel. On the other hand, recent developments in the growth literature have provided empirical evidence showing that not only physical capital but also human capital is an important driving force for long-run economic growth. Importantly, whereas physical capital is diluted as the population grows, human capital is never diluted due to the non-rivalrous property of human capital. This suggests that to the extent that human capital matters in the growth process, the effect of capital deepening may be weakened. Secondly, in the...

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