Saturday, November 14, 2009

Reversing Japan's Demographic Trends

Despite recent gains, Japan's total fertility rate (TFR) stands at 1.37, well below the two children per woman average needed to stabilize the country's population. Unless Japan's current demographic trajectory is reversed, it's population will decrease by 20 percent by 2050. Consequently, an aging Japan, unable to replenish its workforce, will see its substantial manufacturing base diminish. Additionally, as China continues to rise, Japan is likely retain less and less regional and global influence. For decades, Japan has spent a relatively small fraction of its GDP on military expenditures when compared to the expenditures of other industrial nations. Yet just when many would like to see Japan reassert itself militarily in the region, its looming economic and demographic constraints threaten to check its ability to do so.

Child-rearing support became notable campaign issue leading up to the 2009 Japanese general elections, with the then ruling coalition, the Liberal Democratic Party, and the opposition Democratic Party of Japan (DPJ) attempting to lure young voters with generous child-rearing support packages and commitments to free education. Since coming to power, the DPJ has proposed a generous assistance package to encourage child-rearing. The plan includes increases to the child-birth allowance, monthly allowances to parents of middle school children, and financial assistance for students attending private schools. Such efforts will undoubtedly entail significant costs. For instance, the child-allowance program currently cost ¥5.3 trillion ($59.2 million). The DPJ plans to pay for this package by restructure existing taxes and allowances, increasing the burden on individuals that do not benefit from the plan.

While well-intended incentives may increase childbirths marginally, the DPJ will need to look beyond allowances and tax breaks to other, less material factors. One such factor may be the uncertainty generated by Japan's volatile employment environment. Other factors to consider include traditional values and social norms regarding the workplace and the roles of men and women in family life. Japanese women are delaying marriage - or even choosing not to marry at all - because marriage is often viewed as "a loss of liberty" in Japanese society. The pervasive attitude that mothers, for the sake of their children's psychological and emotional health, must be physically present for at least the first three years of their children's lives may explain why one in four mothers leave their job when they have their first child.

Regardless of the measures the new Japanese government decides to employ, results may not come quickly enough. Incentives may have a small short-term effect but would take a generation to impact the country's supply of workers. If the DPJ wants to have an immediate effect on the nation's demographic crisis, it may have to tackle one of the country's perennially sensitive issues, immigration.

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