Population Aging and Changing Generational Transfers in Japan and Other Selected Asian NTA Countries

Population Aging and Changing Generational Transfers in Japan and Other Selected Asian NTA Countries Naohiro Ogawa Sang-Hyop Lee Andrew Mason Qiulin Chen An-Chi Tung Nicole Mun Sim Lai Rikiya Matsukura Workshop on Intergenerational Economics 2011, Beijin, 6 September 2011

2045-2050 2040-2045 2035-2040 2030-2035 2025-2030 2020-2025 2015-2020 2010-2015 2005-2010 2000-2005 1995-2000 1990-1995 1985-1990 1980-1985 1975-1980 1970-1975 1965-1970 1960-1965 1955-1960 1950-1955 100 90 80 70 60 50 40 30 20 10 0 Proportion of the population with below replacement-level fertility in Asia s total population (%) Year Calculated using data from United Nations, Department of Economic and Social Affairs, Population Division, World Population Prospects: The 2010 Revision.

Trends in total fertility rate in five Asian countries 8 (Children) 7 6 5 4 3 2 1 0 1947 1950 1953 1956 1959 1962 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 China Japan Republic of Korea Taiwan Province of China Thailand Sources: China: Data obtained from Dr. Qiulin Chen. Japan: Ministry of Health, Labour and Welfare (various years) Vital Statistics of Japan. Korea: (1) Statistics Korea (Date unknown) data downloaded from Korean Statistical Information Service. Taiwan: (1) For 1960-2009: Council for Economic Planning and Development (2010) Population Projections for R.O.C (Taiwan): 2010-2060, B. Appendixes. (2) For 2010: Department of Statistics, Ministry of the Interior, Date Unknown, Statistical Yearbook of Interior. Thailand: Data obtained and adopted from Patama Vapattanawong and Pramote Prasartkul (2011) Chapter2 fertility transition and its impact, Impact of Demographic Change in Thailand, UNFPA/NESDB publication.

Trend in % single among men aged 35-39, 39, selected East Asian countries, 1970-2005 Provided by Gavin Jones

Dire prospects of Japanese young men: If today s marriage market remains unchanged, more than 30% young men will remain unmarried!

Although a substantial part of the decline in the TFR has been due to later marriage and less marriage, marital fertility has been playing a considerably important role, too. Thus, the government has been making a series of strenuous efforts to boost marital fertility.

Major Obstacles to Marital Fertility 1. Financial obstacles (e.g., economic model of fertility developed by Gary Becker in the 1960s; the direct cost of having children) 2. Work-related obstacles (i.e., the indirect cost of children, also known as the opportunity cost of children) 3. Normative obstacles (there are elements of the normative system of societies that not only influence the desired or expected number of children but also their quality, that is, the amount of money, time, and energy parents are expected to devote to their children.) 4. Other obstacles (e.g., partial or total infecundity, especially in the context of later age at childbearing; the lack of stable partnership or marriage that some individuals may be confronted to when considering having children, or disagreement between spouses regarding family sizes.)

Major Japanese government measures aimed at raising fertility TFR Year Action 2.14 1972 Establishment of child allowances (no pronatalist intent at first) 1.54 1990 Establishment of inter-ministry committee on "Creating a sound environment for bearing and rearing children" 1.53 1991 Enactment of Childcare Leave Act 1.50 1994 Announcement of Angel Plan for FY 1995-99 1.42 1995 Enactment of Childcare and Family Care Leave Act 1.34 1999 Announcement of New Angel Plan for FY 2000-04 1.33 2001 Amendment to the Employment Insurance Law, specifying 40 percent of salary to be paid to regular full-time employees during child-care leave 1.32 2002 Announcement of "plus one" plan 1.29 2003 Enactment of "next-generation" law Enactment of law on "Basic Measures to Cope with a Declining Fertility Society" 1.29 2004 Cabinet office approves "Outline of Measures to Cope with a Declining Fertility Society" Announcement of New Angel Plan for FY 2005-09 Revision of Child Care and Family Care Leave Act 1.26 2005 Extension of childcare leave to part-time workers, with some limitations 1.32 2006 Announcement of New Policy to Cope with Low Fertility 1.34 2007 Announcement of Work-Life Balance Charter and Guidelines Announcement of Japan's Priority Strategies for Support Children and Family 1.37 2008 Announcement of "New Strategy for Eliminating Kindergarten Waiting Lists" 1.39 2010 Cabinet office formulates the "Vision for Children and Child Rearing" for FY 2010-14 Decision to establish Council for Consideration of a New System for Children and Child Rearing Payment of student allowances (expected to be abolished) Formulation of the "Project for Early Elimination of Kindergarten Waiting Lists"

Net result of fertility-raising raising measures so far Fertility has continued to decline TFR was 1.26 in 2005, and 1.39 in 2010 TFR for 1989 was 1.57 (which was a base for newly coined term 1.57 shock ) But it probably would have declined even more without these measures

Republic of Korea s recent pronatalist programs

Policy Reponses to Low Fertility In June 2006, the 1 st five-year basic plan on low fertility ( 06-10) was initiated with hopes of fostering a climate conducive to childbearing and childrearing, and the plan included 230 specific measures in the following areas: - Strengthening social role and financial supports - Family-friendly and gender-equal social climate - Nurture healthy future generations -11 - Hanyang University Institute of Aging Society

Policy Reponses to Low Fertility Major Goals of the 2nd five year Basic plan( 11 15) Low Fertility Target : Benefit : 1st Plan Low-income families Childrearing support 2nd Plan Double-income families Comprehensive approaches such as the work-family balance

Declining Mortality Increasingly important demographic source of population aging at a later stage, particularly when e0 exceeds 70 years

Changes in life expectancy for entire Asia, 1950-2050 (Years) 90 80 70 60 50 40 30 20 10 0 1950-1955 1960-1965 1970-1975 1980-1985 1990-1995 2000-2005 2010-2015 2020-2025 2030-2035 2040-2045 Source: United Nations, 2007, World Population Prospects: The 2006 Revision.

Broken limits to life expectancy since 1840 Source: Jim Oeppen and James W. Vaupel, 2002. Broken Limits to Life Expectancy, Science: Vol.296

Not only a linear growth of human longevity but also Compression of mortality/morbidity risks over time

5500 Age-specific pattern of female deaths for the case of Japan, 1950-2100 (Persons) 5000 4500 4000 3500 3000 2500 2000 1500 1000 500 0 0 1 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 105 110 115 120 125 130 Age 1995-2000 2020-2025 2045-2050 2070-2075 2095-2100 1950 Note: calculated using the following data (1) 1950: data downloaded from Human Mortality Database. University of California, Berkeley (USA), and Max Planck Institute for Demographic Research (Germany). (2) 1995-: United Nations, Department of Economic and Social Affairs, Population Division, (2011) World Population Prospects: The 2010 Revision.

5500 Comparison between general population and Age-specific those pattern who of enrolled female deaths in health for insurance the case of schemes China, 1950-2100 (Persons) 5000 4500 4000 3500 3000 2500 2000 1500 1000 500 0 0 1 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 105 110 115 120 125 130 Age 1995-2000 2020-2025 2045-2050 2070-2075 2095-2100 CIRC 2000-03 Note: Calculated using data from United Nations, Department of Economic and Social Affairs, Population Division, (2011) World Population Prospects: The 2010 Revision. We obtained data of China Insurance Regulatory Commission from Dr. Qiulin Chen.

A new finding

Adopted from Nadine Ouellette & Robert Bourbeau (2011) Research Article: Changes in the age-at-death distribution in four low mortality countries: A nonparametric approach," Demographic Research, Volume 25, Article 19, p. 595-628, published on 9 September, 2011, DOI: 10.4054/DemRes.2011.25.19, downloaded from http://www.demographic-research.org/volumes/vol25/19/. (p. 627).

Compression of mortality and morbidity risks over time Likely to affect each individual s long-term human and financial capital planning

An innovative approach to analyzing some of the aging- related problems: National Transfer Accounts (NTA)

NTA Member Countries 40 countries as of August, 2011 (including 4 future member countries) Asia-Pacific The Americas Europe Africa Australia Philippines Lao PDR Argentina Costa Rica Uruguay Austria Italy Kenya China Republic of Korea Cambodia Brazil Jamaica Finland Slovenia Mozambique India Taiwan Malaysia Canada Mexico France Spain Nigeria Indonesia Thailand Sri Lanka Chile Peru Germany Sweden Senegal Japan Viet Nam Colombia United States Hungary United Kingdom South Africa

5 4 (Million yen) 5 Age 4 specific profile of per capita consumption and labor income Total Reallocations: Surplus Lifecycle Deficits (Million yen) 3 2 1 Age specific profile of per capita consumption and labor income Japan: 2004 Japan: 2004 Deficit Deficit 3 2 0 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90+ Public Age & familial transfers Age profile of per capita lifecycle deficit, Japan:2004 1 5 4 (Million yen) 0 0 5 10 3 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90+ -1-2 -3 2 1 Asset reallocations 0 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90+ -1-2 Age Asset reallocations -3 Age

1.2 China 2002 1.2 Thailand 2004 1.0 1.0 Standardized by Labor income aged 30-49 0.8 0.6 0.4 0.2 0.0-0.2-0.4 Standardized by Labor income aged 30-49 0.8 0.6 0.4 0.2 0.0-0.2-0.4-0.6-0.6-0.8 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90+ Age -0.8 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90+ Age Asset reallocations Public transfers Private transfers LCD Asset reallocations Public transfers Private transfers LCD 1.2 Republic of Korea 2005 1.2 Japan 2004 1.0 1.0 Standardized by Labor income aged 30-49 0.8 0.6 0.4 0.2 0.0-0.2-0.4 Standardized by Labor income aged 30-49 0.8 0.6 0.4 0.2 0.0-0.2-0.4-0.6-0.6-0.8 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90+ Age -0.8 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90+ Age Asset reallocations Public transfers Private transfers Life Cycle Deficit Asset reallocations Public transfers Private transfers LCD

The case of Japan

Japan 1984 1.2 1.0 Standardized by Labor income aged 30-49 0.8 0.6 0.4 0.2 0.0-0.2-0.4-0.6-0.8 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90+ Age Asset reallocations Public transfers Private transfers LCD

Japan 1994 1.2 1.0 Standardized by Labor income aged 30-49 0.8 0.6 0.4 0.2 0.0-0.2-0.4-0.6-0.8 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90+ Age Asset reallocations Public transfers Private transfers LCD

Japan 2004 1.2 1.0 Standardized by Labor income aged 30-49 0.8 0.6 0.4 0.2 0.0-0.2-0.4-0.6-0.8 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90+ Age Asset reallocations Public transfers Private transfers LCD

The case of China

China 1995 1.2 1.0 Standardized by Labor income aged 30-49 0.8 0.6 0.4 0.2 0.0-0.2-0.4-0.6-0.8 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90+ Age Asset reallocations Public transfers Private transfers LCD

China 2002 1.2 1.0 Standardized by Labor income aged 30-49 0.8 0.6 0.4 0.2 0.0-0.2-0.4-0.6-0.8 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90+ Age Asset reallocations Public transfers Private transfers LCD

Impact of Population Aging: from per capita to total population The case of Japan

Japan 1984 6.0 4.0 Trillion yen (2000 constant prices) 2.0 0.0-2.0-4.0-6.0 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90+ Age Asset reallocations Public transfers Private transfers LCD

Japan 1994 6.0 4.0 Trillion yen (2000 constant prices) 2.0 0.0-2.0-4.0-6.0 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90+ Age Asset reallocations Public transfers Private transfers LCD

Japan 2004 6.0 4.0 Trillion yen (2000 constant prices) 2.0 0.0-2.0-4.0-6.0 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90+ Age Asset reallocations Public transfers Private transfers LCD

Changing pattern of the mean age of consumption and the mean age of labor income

Japan 49 44 89 94 99 04 Average age of labor income 39 34 84 29 24 24 29 34 39 44 49 Average age of consumption

China 49 44 Average age of labor income 39 34 95 02 29 24 24 29 34 39 44 49 Average age of consumption

Now, let us look at two types of intergenerational Transfers: Public intergenerational transfers Private intergenerational transfers

Japan 2004 1.2 1.0 22 30 61 77 Standardized by Labor income aged 30-49 0.8 0.6 0.4 0.2 0.0-0.2-0.4-0.6-0.8 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90+ Age Asset reallocations Public transfers Private transfers LCD

Per capita net public transfers received, Japan, 1984-2004 Million yen (2000 constant prices) 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0-0.5-1.0-1.5 1984 1989 1994 1999 2004-2.0 0 10 20 30 40 50 60 70 80 90+ Age

Change in crossing ages for net public transfers, Japan, 1984-2004 2004 22 61 1999 21 61 1994 21 61 1989 21 60 1984 21 60 0 10 20 30 40 50 60 70 80 90 Age

The public sector tends to be tardy in responding to Japan s s rapidly changing age structure and social needs. The private sector responds more rapidly like

Per capita net private transfers received, Japan, 1984-2004 2.5 Million yen (2000 constant prices) 2.0 1.5 1.0 0.5 0.0-0.5-1.0-1.5 1984 1989 1994 1999 2004-2.0 0 10 20 30 40 50 60 70 80 90+ Age

Change in crossing ages for net familial transfers, Japan, 1984-2004 2004 30 77 1999 29 74 1994 29 70 1989 27 64 1984 27 64 0 10 20 30 40 50 60 70 80 90

Thailand 2004 1.2 1.0 Standardized by Labor income aged 30-49 0.8 0.6 0.4 0.2 0.0-0.2-0.4 2426 26 61 81-0.6-0.8 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90+ Age Asset reallocations Public transfers Private transfers LCD

Change in crossing age for net public transfers Thailand (04) 24 81 Republic of Korea (05) 23 59 Japan (04) 22 61 China (02) 23 57 0 10 20 30 40 50 60 70 80 90

Change in crossing age for net private transfers Thailand (04) 26 61 Republic of Korea (05) 29 71 Japan (04) 30 77 China (02) 26 63 0 10 20 30 40 50 60 70 80 90

Republic of Korea 2005 1.2 1.0 Standardized by Labor income aged 30-49 0.8 0.6 0.4 0.2 0.0-0.2-0.4-0.6-0.8 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90+ Age Asset reallocations Public transfers Private transfers Life Cycle Deficit

In Japan, the elderly are playing the role of the society s s safety net

Public pensions are a highly dependable source of income for the elderly. The employment for their middle-aged sons and daughters has been unstable since the beginning of Japan s s lost decade.

Rising costs of children and the elderly

In Japan, the cost of the elderly has been rising, and so is the case of the cost of children, as shown in the following two graphs:

Changing pattern of three components of per capita reallocation of lifecycle deficits in Japan 1984 5.0 4.0 Child LCD 10 yrs of mean YL Working years 35 years Elderly LCD 12 yrs of mean YL 3.0 2.0 Million yen (real prices in 2000) 1.0 0.0-1.0-2.0-3.0 23 years old 58 years old -4.0 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90+ Age Asset-based reallocations Public transfers Private transfers Lifecycle deficit

Changing pattern of three components of per capita reallocation of lifecycle deficits in Japan 2004 5.0 Child LCD Working years Elderly LCD 4.0 13 yrs of mean YL 33 years 17 yrs of mean YL 3.0 2.0 Million yen (real prices in 2000) 1.0 0.0-1.0-2.0-3.0 26 years old 60 years old -4.0 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90+ Age Asset-based reallocations Public transfers Private transfers Lifecycle deficit

How about Taiwan Province of China?

Lifecycle deficit of Taiwan, 1981-2005 1 0.8 0.6 0.4 LCD/LY(30-49) 0.2 0-0.2-0.4-0.6-0.8 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 Age 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1999 2000 2001 2002 2003 2004

How about Republic of Korea?

Lifecycle deficit of South Korea, 1996-2005 1.0 0.8 0.6 0.4 LCD/LY30-49 0.2 0.0-0.2-0.4-0.6-0.8 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 Age 1996 2000 2005

How about Thailand?

Lifecycle deficit of Thailand, 1981-2004 0.8 0.6 Standardized by labor income aged 30-49 0.4 0.2 0.0-0.2-0.4-0.6-0.8 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90+ Age 1981 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004

Are they (children and the elderly) competing for the limited financial resources? Is there any evidence of the crowding- out effect between them?

Time-series relationship between cost of children and elderly in Japan, Republic of Korea, Taiwan Province of China, and Thailand 20 18 16 04 05 03 01 02 Child LCD / YL (30-49) 14 12 93 2000 94 94 05 99 95 04 96 04 02 97 99 98 2000 10 8 91 92 90 89 88 82 85 83 87 84 86 81 96 81 90 84 86 89 2000 96 94 92 98 88 6 6 8 10 12 14 16 18 20 Elderly LCD / YL(30-49) Japan Taiwan Thailand Korea

Can we really rely on our future children? If not, what else do we have in the next few decades?

Demographic Dividends Two demographic dividends Changes in the economic support ratio Changes in lifecycle wealth

The First Demographic Dividend is generated when Support ratio

Support Ratios Effective workers are calculated as a weighted sum of pop using labor income age profile. Effective consumers are calculated in a similar fashion, using consumption age profile. Ratio of effective labor to effective consumers is the Support Ratio The balance of workers and consumers for the whole population is summarized by the support ratio Support Ratio Effective Workers Effective Consumers 0 0 Pop x y l x Pop x c x

First demographic dividend in selected Asian countries: 1975-2050 2.5 2.0 1.5 Thailand 2011 Economic growth rate 1.0 0.5 0.0 China 2017 Taiwan Province of China 2019-0.5 Japan 1982-1.0 Republic of Korea 2009-1.5 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 Age Taiwan South Korea Japan China Singapore Thailand

Japan s last resort Use of the second demographic dividend

The Second Dividend (age compositional and behavioral effects) Life expectancy is increasing Lower fertility (fewer children) Stimulates the accumulation of wealth More wealth leads to a permanent increase in income

Second demographic dividend of Japan: 1970-2050 1.6 (%) 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0-0.2-0.4-0.6 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 Year

Effects of demographic changes on economic growth in Japan, 1970-2008 10 8 6 4 2 0-2 -4 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 Year First Total demographic dividend Second demographic dividend Other Annual economic growth rate

Age profiles of assets and pension wealth transfers in Japan, 1999 (Million yen) 50 40 30 20 10 0 60 65 70 75 80 85 90 95 Age Financial assets Real assets Present value of future pension benefits

Caution OECD s warning! 71 % of Japanese adults have no knowledge about investment in equities and bonds

3.0 (%) Second demographic dividend in Asian countries, 2000-2050, expressed in terms of the annual growth rate 2.5 2.0 1.5 1.0 0.5 0.0 2000-2005 2005-2010 2010-2015 2015-2020 2020-2025 2025-2030 2030-2035 2035-2040 2040-2045 2045-2050 China Thailand Note: Population data: United Nations Population Prospects (Long Range): 2004 Revision. Profile: * For China, the averaged Asian profiles were used. For Thailand, the country specific age profiles (2004) were used.

More serious sources of uncertainties for Japan

Deteriorating family values

Trends in values and expectations about care for the elderly: Japan, 1950-2010 90 80 (%) Attitude toward support of aged parents Good custom and natural duty 1986: Promotion of in-home care of the elderly 70 60 1961: Establishment of universal coverage of medical and pension programs Proportion of those aged 65+ living with children 50 40 30 20 Old-age dependence on own children Expect to depend on children 10 0 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 Year Sources: Mainichi Newspapers of Japan, Summary of Twenty-fifth National Survey on Family Planning, 20005. Mainichi Newspapers of Japan, Summary of the 2004 round of the National Survey on Population, Families and Generations, 2004. Nihon University Population Research Institute, National Survey on Work and Family, 2007 and 2010. Japan: Ministry of Health, Labour and Welfare, Japan (various years) Basic Survey Report on Health and Welfare. Ministry of Heath, Labour and Welfare, Japan (various years) Basic Survey of Living Conditions of the People.

Gloomy prospect of Japan s social protection programs

Social security expenditure as percentage of national income in Japan, 1951-2008 30 25 (%) 2004 pension reform Introduction of macroeconomic indexation, with temporary modifiers (changes in the number of participants and beneficiaries life expectancy) Initiation of Long-term Care Insurance 20 1985 pension reform compulsory coverage of dependent spouses of employees Implementation of the Gold Plan 15 10 Establishment of universal coverage of medical services and pension Free medical care services provided to those aged 70 and over ( Year One of Welfare ) Pension Pension and welfare LTCI 5 Welfare and other expenditures Medical costs 0 1951 1956 1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 Year Source: National Institute of Population and Social Security Research (2010) The Cost of Social Security in Japan FY2008.

Welfare policy orientations Welfare-state building, starting from the late 1950s in the West For the East Asian models: Welfare orientalism, Confucian welfare state, and East Asian regime In the 1970s, Japan came up with the employment regime, while the Republic of Korea established its workfare regime. Which model will China choose?

Thank you!