But the problems of excess savings and reform should have been attacked in the 1990s. Many people seem tired of hearing about the coming demographic change. But it is very real and holds several serious consequences for Japan. To get an idea of the magnitude of the coming changes, consider that the cohort of those currently zero to four years old is 40 percent smaller than the group aged 20 to 24. Over the next 20 years, therefore, the educational system will face a sharp decrease in the number of students, and subsequently, the labor force will be starved for young workers.
Companies already face a shrinking labor force.
But they may also suffer a loss of vitality. Young employees have both the latest academic training plus greater interest in pursuing new ideas. As Japanese corporations confront the rapidly shrinking pool of young workers, management is likely to become less innovative and aggressive, blunting corporate competitiveness. Meanwhile, the nation will face a severe problem funding pensions. As the proportion of older people rises, pension contributions must rise dramatically as a share of wages, retirement ages must be postponed, or benefits must be reduced.