Why Japan’s low birth rate makes economic sense


Special To The Japan Times

Japan’s low birth rate is often framed as the definitive crisis facing the country. A shrinking population constricts the labor force, drives economic stagnation, exacerbates elderly care costs, and eventually leads to cultural collapse. But is this actually true? I argue that Japan’s shrinking population is not all bad, and may actually present a hidden advantage to navigating this century’s artificial intelligence revolution.

To begin, I’d like to address the argument typically presented against Japan’s current demographic trends. Broadly, Japan is believed to be experiencing a collective action problem. While it may make sense for individual families to have few or no children due to monetary and temporal constraints, collectively the country as a whole should want more kids. Therefore, government policies are needed to incent childbirth — which we see implemented today with middling efficacy.

But why should Japan want more children? The obvious, direct consequence of a lower birth rate is a constricting labor supply. But fewer workers is not necessarily a bad thing. Thinning labor puts upward pressure on wages, increasing living standards and reducing unemployment. In fact, reducing the labor supply is the rationale commonly given (though arguably justified) for reducing immigration in my home country of the United States. The counterbalancing risk, of course, is that expensive labor makes Japanese products less competitive, reducing exports and shrinking GDP.

But this downside is only true if labor cannot be effectively substituted with technology. And there is very good reason to believe that not just the Japanese — but the global labor force — is due for a massive labor substitution. Advances in artificial intelligence (AI) and automation will eliminate between 30 percent to 60 percent of today’s jobs, depending on which major study you prefer. Positions like trucking, cashiering and clerking will be first to go; but even relatively skilled jobs like paralegals and analysts are predicted to be lost within two decades.

Given this massive technological shift, a reduced birth rate makes anticipatory sense. In the U.S., futurists like the firm Y-Combinator are advocating for a universal basic human income to address social instability due to spiking unemployment. But in Japan, the labor supply is preemptively thinning. The reasons behind Japan’s low birthrate may not necessarily be healthy — overly demanding jobs, lack of institutional support for families, and more — but that does not mean the outcome of these factors is wholly undesirable.

And there may be other, unanticipated benefits to a shrinking Japan. The country’s population is three times the size of California’s — packed in a significantly smaller land mass. Compounding crowding is Japan’s mountainous terrain, which covers over 70 percent of the country. Population thinning may reduce congestion in cities, render urban housing more affordable, and even ease crowding on Japan’s packed commuter trains.

Finally, a reduction in Japan’s population may ultimately catalyze necessary societal reform. Already Japan’s low birthrate is prompting limited immigration reform, making it easier for certain categories of foreigners to live and work in the country. Japan is not self-destructive; it stands to reason that if population shrinkage continues, Japan will increasingly modernize its immigration policies. Ultimately, labor market forces may incite Japan to open up in a way inconceivable to the country now, but vital to its continued success as an economic power.

So what are the downsides to Japan’s low birthrate? The two most typically cited are burdensome elderly care, and weakening national security. Let’s look at each in turn.

As global life expectancy increases, the costs of caring for the elderly will naturally rise in most major economies. It is not the rising cost of elderly care by itself that’s the problem, but the per-capita burden of these costs. An aging population isn’t bad if the productive workforce remains large proportionally. And in Japan, this just might be the case. The retirement age is projected to rise to 65 in the next few years; as major companies recognize older employees can still contribute to the workforce. And human-centered jobs like elderly care are cited as some of the best insulated against AI displacement. Almost circuitously, an older population may prove a source of employment.

What about national security, and Japan’s reduced ability to protect itself? Here again the coming technology revolution might suggest this is not as much of a problem as it seems. I believe the interdependent nature of today’s largest economies makes direct conflict unlikely, and even then Japan is bulwarked by its military relationship with the U.S. And if you believe, like I do, that digital warfare, IP-theft and cybercrimes are likely the battlefields of tomorrow, then a shrinking population simply reduces the surface area of the target.

The arguments presented here are intentionally overstated for the sake of brevity. I do not believe that a shrinking population is an unequivocal good. For example, I am particularly concerned about the cultural risks to Japan, and Japan’s diminishing influence abroad. And taken reductio ad absurdum, a declining population threatens the end of Japan itself. My point is chiefly that the coming technology shift means our old assumptions about human capital and domestic productivity do not necessarily hold.

Ultimately, I would prefer Japan to have a higher birthrate — like most rational thinkers. But I also try to look on the bright side of the population chasm. As AI eliminates traditional employment, Japan may actually be well-positioned to safely navigate its transition.

William Collis has worked for the Boston Consulting Group, Hasbro and the Institute for Strategic Leadership in Tokyo. He is currently the co-founder and president of Gamer Sensei.