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Guiding Japan/ Foreign Perspective for Change: Take a Cue from the Netherlands in Dealing with Aging Population

By Hiroshi Matsubara, Asahi Shimbun

Japan

October 31, 2005

A director of Dutch Ministry of Economic Affairs Hans Vijlbrief

The "aging society" has become one of Japan's top priorities, with seniors 65 and older accounting for 19.5 percent of the population in 2004, a demographic that is rapidly growing. 

According to a high-ranking economist in the Netherlands, which also has an aging society, Japan must make it easier for women to work if it wants to secure a sufficient work force in the near future. 

Hans Vijlbrief, a director at the Dutch Ministry of Economic Affairs, recently spoke about government policies for an aging society at a seminar in Tokyo organized by the Research Institute of Economy, Trade and Industry. 

Vijlbrief stresses that part-time workers will have to be treated more on par with full-time workers so that women can re-enter the labor force after having children. However, the economist notes that it might be at cross-purposes to accept huge number of immigrants into the labor market because they will impose a considerable burden on society over the long term. 

Q:How do you compare the aging society of the Netherlands with that of Japan? 

A:In the Netherlands, we have a population now of about 16 million people, but our population growth is slowing down. Our aging problem (stems from) the baby-boom generation born after World War II, who are retiring today. 
Japan, however, already has a nearly shrinking population, and a quickly shrinking population is coming in a decade. The main reason is the difference in the fertility rate between the two countries. Japan's fertility rate (an average of 1.29 children per mother) is much lower than the average of 1.7 in the Netherlands. The Japanese situation seems to be that women are forced to make a choice either to have children or to work. 

We used to have a very low rate of labor participation by women in my mother's generation, 30 or 40 years ago. But since then, there has been an influx of cohorts of young women into the labor market. 

The strength of the Dutch labor market is the equal treatment of part-time and full-time workers, which helps women with young children. Women usually start out full-time, work a couple days in a week if they have children, and after the children go to secondary school, (the mothers) can go back to full time. In this way, the amount of women who make a decision not to have children could be reduced. 

Q:How should Japan address the issue of its low fertility rate? 

A:In Japan, there seems to be a dual labor market, in which regular workers are highly protected and others are not. If part-time workers are equally protected, it will encourage women to have children and remain in the labor force at the same time. Excellent child-care policies, such as day-care centers, might also be effective in reducing the number of women who choose to have no children. 

But it should be remembered that increasing fertility is not an easy task for the government, because (doing so) depends on individual decisions and culture. (The government) will also have more financial problems in the first 20 years before the new young people become part of the labor force because it must take care of their educations. 

Q:Can the import of immigrants alleviate the impact of aging? 

A:Importing immigrants is not an easy answer to the aging problem, because it is unsustainable for a country to accept the massive number of immigrants needed to offset the aging population. 

For example, if the Netherlands wanted to solve the aging problem by importing immigrants alone, it would end up with a total population of 40 million by 2040. That is just unsustainable. 

It should also be remembered that immigrants also get old and, at least in the Netherlands, they need more social assistance, such as unemployment or disability benefits, because they often have language problems and are less integrated into society. 

A large number of immigrants came to the Netherlands during the 1960s and '70s, and many of them stayed permanently in the country, despite our expectation that they would flow out again. It is important to make it clear what amount of resources Japan has for immigrants who want to stay here permanently. 

Q:How prepared do you think Japan is for the aging problem so far? 

A:Given its low fertility rate, Japan has more problems than the Netherlands in a demographic sense, but its budgetary consequences may be less severe. The first reason is that the elderly people in Japan work longer than in Europe, as seen in its effective retirement age of 70, according to an OECD survey. 
The second reason is that there have been large reforms in the pension system in Japan to reduce pension benefits and increase premiums, which encourages elderly people to participate in labor and decreases government expenditure. 

Q:What economic reforms does Japan need to prepare for its aging population? 

A:Compared to other OECD countries, Japanese people work longer hours but have relatively low productivity. Therefore, policies to enhance productivity are essential to maintain GDP growth when the labor force base is shrinking. Regulatory reforms, strengthening competition, especially in network industries, and openness to trade and investment are good policy options. 

The most difficult technical part is Japan's budgetary situation. The annual government deficit of some 6 percent and the debt of over 160 percent of GDP are just unsustainable, and the aging population will impose more strain on the budget by expanding expenditure. This level of government deficit can also contract much needed economic growth, as it must finance increasing interest when Japan re-enters a growth track.


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