Females, the Elderly, and also Males: Demographic Aging and Macroeconomy in Japan

33 Pages Posted: 4 Jun 2019

See all articles by Sagiri Kitao

Sagiri Kitao

University of Tokyo, and Research Institute of Economy, Trade and Industry (RIETI)

Minamo Mikoshiba

University of Tokyo

Hikaru Takeuchi

Government Pension Investment Fund, Japan (GPIF)

Date Written: June 4, 2019

Abstract

The speed and magnitude of ongoing demographic aging in Japan are unprecedented. A rapid decline in the labor force and a rising fiscal burden to finance social security expenditures could hamper growth over a prolonged period. We build a dynamic general equilibrium model populated by overlapping generations of males and females who differ in employment type and labor productivity as well as life expectancy. We study how changes in the labor market over the coming decades will affect the transition path of the economy and fiscal situation of Japan. We find that a rise in the labor supply of females and the elderly of both genders in an extensive margin and in labor productivity can significantly mitigate effects of demographic aging on the macroeconomy and reduce fiscal pressures, despite a decline in wage during the transition. We also quantify effects of alternative demographic scenarios and fiscal policies. The study suggests that a combination of policies that remove obstacles hindering labor supply and that enhance a more efficient allocation of male and female workers of all age groups will be critical to keeping government deficit under control and raising income across the nation.

Keywords: Japanese Economy, Demographic Trends, Female and Elderly Labor Force Participation, Overlapping Generation Model

JEL Classification: E62, J11, J21, H55

Suggested Citation

Kitao, Sagiri and Mikoshiba, Minamo and Takeuchi, Hikaru, Females, the Elderly, and also Males: Demographic Aging and Macroeconomy in Japan (June 4, 2019). CAMA Working Paper No. 37/2019. Available at SSRN: https://ssrn.com/abstract=3398653 or http://dx.doi.org/10.2139/ssrn.3398653

Sagiri Kitao (Contact Author)

University of Tokyo, and Research Institute of Economy, Trade and Industry (RIETI) ( email )

Yayoi 1-1-1
Bunkyo-ku
Tokyo, Tokyo 113-8657
Japan

Minamo Mikoshiba

University of Tokyo ( email )

Yayoi 1-1-1
Bunkyo-ku
Tokyo, Tokyo 113-8657
Japan

Hikaru Takeuchi

Government Pension Investment Fund, Japan (GPIF) ( email )

Japan

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