Slower Population Growth Hits the United States: What Can the US Learn From Japan

Slowing population growth has plagued high income countries like Japan, South Korea, and the United Kingdom. How will it affect the United States?

By Greg Pustorino

Historically, fears around population growth generally followed the thought process of Thomas Malthus, who believed that explosive human population growth would eventually widdle down the Earth’s natural resources and eliminate the abundance of food resulting in mass starvation or overpopulation. The numerous innovations in agriculture and technology since Malthus published his ideas in 1798, have nearly eliminated the worry of overpopulation. However, the reverse, population decline, might not be a comfortable alternative.

Ageing populations and slower population growth rates have plagued many high income countries in the past decades. Japan has been hit the hardest with both a shrinking population and the highest proportion of elderly citizens as a part of the population of any country in the world. Additionally, over 35% of the Japanese population is over the age of 65 and the number of Japanese people of working age has decreased by 13% since 2000. The ageing of the Japanese population, a direct result of slower population growth, puts a larger and larger strain on social security and other retirement benefits as the number of retirees increases. Furthermore, the declining population means there are fewer young people joining the labor force to compensate for the higher demand for social security payouts. Fewer young people entering the workforce also means that Japan might not be able to maintain its current level of production. The International Monetary Fund has estimated that Japan’s declining population will reduce GDP by 1% over the next three decades.

This decrease in the Japanese labor force has put strain on the country’s main automotive and electronics industries as they lack the manpower to maintain production. Rob Carnell, the head of research and chief economist for Asia-Pacific at ING went as far as to say, “Japan’s demographics weaken its GDP growth… A rapidly ageing population and shrinking labor force are hampering growth.” Mr Carnell’s remarks are consistent with the predictions of the Solow growth model, which states that GDP will rise with direct increases in the population while holding all other factors constant.

Declining population growth also means that a country will face a smaller domestic market for goods and services. This is most evident in the housing market as Japan has seen a 14% drop in housing construction since 2000. New housing mostly meets the demand from population growth; but with lower birth rates and more deaths, there is a reduced demand for new housing. Businesses are also hit by a decline in population, the number of new enterprises in Japan decreased by 31% from 2006 to 2013. All told, the shrinking of the Japanese population means that even with flat productivity growth there would be a steady decline in GDP from year to year.

The United States has experienced the slowest 10-year growth period for population since the government started to track population in 1790. Last year, the US saw only a 0.5% increase in total population, down from a historic 2-3% increase per year. With the added threat of coronavirus related deaths, the United States might be on track to see its first year of population decline, especially with the reduced immigration numbers experienced under the Trump administration. There has been a steady decline in the birth rate since the Great Recession. As mentioned above, immigration fell to just below 600,000 new immigrants in 2019, down nearly half compared to 2016. And the death rate is rising as baby boomers age.

The effects of slower population growth might start to become prevalent in the United States in the next few years. The underfunding of social security and state pensions will be exacerbated as more baby boomers begin to retire and fewer young people enter the workforce to replace them. Slower population growth can have similar effects to those that Japan is experiencing, as labor markets begin to see fewer new entrants and the demand for durable goods and housing decrease.

Some economists have pointed out that the pool of available workers will grow at the slowest rate since the Civil War. This will make it very difficult for companies to hire and expand their business. This inevitably will put a higher premium on employee retention and recruiting. Some believe that firms will increasingly move towards robotics and automation, where applicable, in order to maintain increased productivity with a decreasing population.

With a falling birth rate and increasing death rate each year, immigration might be a key factor in trying to ward off America’s slowing population growth. Japan’s former prime minister Shinzo Abe attempted to offset Japan’s negative population growth by incentivizing immigration and granting new visas. With the United States population growth in decline, and the risks that entails impending, it is odd to see a president focused on curbing immigration and therefore exacerbating the problem. □

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