Britain should look to Japan to manage its ageing population
England’s fertility rate has fallen to a rate Japan confronted 30 years ago. Here’s the lessons we should take, writes Megan McDonald
One of the biggest challenges facing the incoming Prime Minister will be to keep enough people in work to generate growth in an ageing society. On this, he could do worse than look to Japan.
The UK is following a demographic path that Japan knows well. The fertility rate in England and Wales has fallen to 1.39 children per woman, a level Japan reached almost 30 years ago. At the same time, the number of people above pension age continues to rise. Over the next decade, millions more people will retire while the proportion of working-age people supporting them declines.
These trends are often portrayed as an inevitable drag on the economy, but Japan’s experience tells a more encouraging story.
How Japan confronted an ageing society
Faced with an ageing society, successive Japanese governments have worked with business to enable more people to participate in the economy for longer. This includes supporting older workers to remain economically active, expanding childcare to help more women stay in work and encouraging households to invest more of their savings into long-term assets.
Today, around one in four Japanese people over the age of 65 remain in work, compared with around one in eight in the UK. Despite a shrinking population, Japan’s workforce reached a record 67.8m people last year because participation among older workers continued to increase.
The lesson is not to force everyone to work longer. It is to help them adapt to change if they wish, as well as offer flexible working and phased retirement. Reasonable workplace adjustments and honest conversations about workload can keep experienced employees motivated.
Japan has also shown the impact that childcare provision can have on the labour market. Female participation has risen from around 60 per cent in the early 2000s to 77 per cent today, overtaking the UK. It shows that reducing nursery waiting lists and costs have played a big role in incentivising mothers to remain in or return to work.
Reform rather than decline
Employers have an important role to play alongside government. Flexible working is one of the most effective tools for retaining experienced talent, whether supporting parents balancing childcare or older colleagues managing health and caring responsibilities.
Japan is also using technology to reduce the workforce needed to support an ageing society. It is spearheading the development of robotics and assistive technologies in social care as well as digital tools that help older people live independently for longer.
Perhaps the biggest lesson is that demographic pressure can become a catalyst for reform rather than decline. Faced with slower population growth, Japan has modernised corporate governance, encouraged companies to deploy capital more efficiently and spurred domestic investors. As a result, the Tokyo Stock Exchange is now the world’s second largest by market capitalisation, underpinning the investment that will ultimately drive wage growth.
None of this suggests Japan has solved every challenge. Older workers are sometimes concentrated in lower-quality jobs, the gender pay gap remains stubborn and shifting household savings into productive investment is still a work in progress.
But the country has demonstrated something important to us here in the UK: that an ageing society does not necessarily mean a moribund economy.
Megan McDonald is the CEO of Daiwa Capital Markets Europe