Back in August I posted “The Age Dependency Ratio in Six Countries,” which pointed out that despite Japan’s more aged population it had a higher employment to total population ratio. This post is a more in depth comparison. In terms of the employment to total population ratio Japan is undeniably superior, despite America’s higher fertility rates and immigration. A high(er) fertility rate and immigration are not the only ways a country can achieve a higher employment to total population ratio.(hereafter, ETPR) The ETPR should not be confused with the employment to population ratio which is the ratio of the employed divided by the working age population. I calculate the ETPR by dividing the labor force, minus the unemployed(who are counted as being part of the labor force), by the total population. All data comes from the World Bank and my own calculations based on their data. If you go to the World Bank website and look at their online charts you’ll see that they round their numbers, downloading the data will get you the unrounded numbers. My charts only go to 2013 because the World Bank has not yet published certain data for 2014.
Introduction: Looking into the Abyss
One possibility they contemplated was:
Europe and Japan fail to manage their demographic challenges. European and Japanese populations are aging rapidly, requiring more than 110 million new workers by 2015 to maintain current dependency ratios between the working population and retirees. For these countries, immigration is a controversial means of meeting these labor force requirements. Conflicts over the social contract or immigration policies in major European states could dampen economic growth. Japan faces an even more serious labor force shortage and its strategies for responding— enticing overseas Japanese to return, broadening the opportunities for women, and increasing investments elsewhere in Asia— may prove inadequate. If growth in Europe and Japan falters, the economic burden on the US economy would increase, weakening the overall global outlook.
In another place in the report it states that America maintains an “advantage over Europe and Japan through ability to absorb foreign workers.”
Japan looked headed for major economic problems as it aged, and it did indeed age. Here is a graph of the 15-64 year old population in America and Japan:
And here is a graph of the ETPR of Japan and the United States over time:
Note that as the ETPR is a measure of the total population, a one or two percentage points difference translates to a lot of people. If America in 2013 has the same ETPR as Japan it would translate to an extra 8.2 million workers.
So what happened? Why was disaster averted?
Reasons for Japan’s high ETPR
Japan has maintained a lower level of unemployment than America ever since 2002:
I graphed the labor force participation rates for the working age population:
There were two reasons for Japan’s higher ETPR in the early 2000s. First, recall that in 2000 Japan’s working age proportion was higher than America’s. The second reason is that while the labor force participation rate for the 15-64 group was lower than America’s, Japan had a higher labor force participation rate for people 65 and up*:
Japan has a rate of female labor force participation that has historically been much lower than other developed countries, this is the reason for it’s lower labor force participation rate in the early 2000s. But Japan has been converging with America in terms of female labor force participation:
In terms of male labor force participation Japan’s rate has been consistently higher than America’s:
America’s falling labor force participation rate is often explained as a result of the aging of the population, but note that Japan has a much older population and has undergone the same aging process as America has, yet it’s labor force participation rate for males has barely fallen at all. Note, also, that America’s falling labor force participation rate cannot be explained as a “temporary” result of the Great Recession, it fell during the “boom” and it fell during the “bust.”
We know the mindset of those who wrote that CIA report and America went on to follow their advice. Immigration reached near-record levels, as did the proportion of the population who were foreign born. The assumption was that a worker is a worker is a worker, Mexican high school dropouts would be just as productive as the median American worker and pay the same amount of taxes and use the same amount of welfare. Yet even by their own standards our elites have failed. As they allowed immigrants to stream in they oversaw an exodus of natives from the workforce. There can be little doubt that the stagnating wages for the working class contributed to the decisions of many that disability was a better way to go.
We need new elites.
*The World Bank doesn’t have data for that. I calculated it by the following equation: [65+ labor force participation rate] = ([labor force]-[population aged 15-64]*[labor force participation rate for ages 15-64])/[population aged 65+].