Human capital in Japan’s Demographic Transitions: implications for other Asian countries

Rapid population aging is becoming a common feature in Asian countries where changes in the age distribution as well as the size and growth of their populations are having significant economic impacts. A positive economic effect is realized from the demographic transition from high to low rates of mortality and fertility which produces a large share of the working-age group in the total population. This demographic structure produces a “demographic dividend” which, when it is associated with active investments in human capital, supports economic growth. Economies in East Asia have benefited from such a dividend and parts of South Asia are now beginning to realize it too. But there is also a negative economic impact – when the “population bonus” decays following fertility declines and rising life expectancies. The share of elderly dependents in the total population rises, and the population bonus becomes a “population onus” with an increasing social security burden on the economy for taking care of the elderly. There are ways to address the population onus through higher labor market participation of married women and the elderly, and improvements in the quality of the labor force. The role of human capital becomes more important in the aging society as people tend to stay longer at schools and in the labor markets.