Population aging and labor mobility in Japan

Abstract

By combining the static and dynamic computable general equilibrium models, this paper explores the dynamic impact of future demographic changes on the Japanese economy with a particular focus on multisector production and overlapping generations. Several numerical results were obtained. First of all, the sectoral real GDPs of the aging-related sectors are expected to continue to increase due to the higher demand generated by the elderly, while the total real GDP is forecasted to start to decrease from year 2036 due to the shrinking population. Secondly, calculations show that nearly 60 million more workers will be needed in the private long-term care sector in year 2049 than in year 2018. Thirdly, if a 90 percent inflow of additionally needed labor force to the medical services sector were to be obstructed, the total real GDP would shrink by 0.064 percent. If the same inflow obstruction were to occur to the private long-term care sector, the total real GDP would shrink by 0.030 percent. Fourthly, while a negative impact of the inelastic labor mobility was seen in almost all simulations, the impact of an obstruction in the medical service sector was found to be positive for the pharmaceutical sector due to substitution effect. Finally, the inelastic labor mobility will not only reduce the Japanese economic performance but also welfare, the extent of which depends on the duration of labor immobility. Thus, it is crucial for future economic growth as well as welfare of aging Japan that the additionally needed labor inflow to all aging-related sectors occurs smoothly.