Because the average woman is giving birth to only 1.34 children, the population is expected to peak in 2007, or perhaps even a year or two earlier. By 2025, the number of workers per retired person will fall to two, demographers believe, from four today. All things being equal, that leads to very depressing forecasts. Keidanren, the nation's leading business lobby, recently offered five scenarios for future taxes and benefits assuming that Japan tries to keep government debt under control. But all things aren't equal.
Japan can make many adjustments to ease the burden.
One simple solution is to raise the retirement age dramatically. As Massachusetts Institute of Technology economist Lester Thurow has noted, the retirement age of 65 was set by Bismarck back in the late 19th century when German life expectancy was below 50 years. Other less extreme steps include encouraging more women to work and making greater use of information technology to improve the productivity of the workers Japan still has, says Kiyoshi Ota, a senior economist at the planning agency that commissioned the historical study. Japan's problem isn't demography, the McKinsey study says, but lavish subsidies for the least efficient companies and government red tape that, for example, keeps five of the world's top 10 drugs off the market in Japan. Instead of threatening the economy, a modest decline in population might actually be a blessing of sorts.