An Aging Population: What does that Mean?

by Irina Jiang
Image: empty007

An Aging Population: What does that Mean?

In November and December 2020, China conducted its seventh national census with early reports expected in April 2021. Though it is already May, the National Bureau of Statistics has not yet disclosed their data, and with rumours of a significant decline in working population percentage and abolishment of one-child-policy in 2016, the delay in an early report implies an irreversible population decline. The working age population declined from 70% in 2010 to only 64% in 2019 while the ratio of people aged 60 and above rose by 3 percentage points in the decade to 2010. The United Nations projects that China’s population will peak in 2027, which is much earlier than economists and policy makers predicted . The population census is a sensitive figure and will not be released until government departments reach a consensus on the data. The census of the most populous country in the world will have significant implications on its future economic development, social pressure, and international influence. What does a shrinking population mean for future generations? Why is China the most populous country in the first place? Who will pay for the future? 

For future generations, an aging population, therefore, means lower disposable income; for policy makers, it means a potential shortage of workforce numbers and lower capital investments due to savings for pensions.”

Implications for future generations

The most significant impact of an aging population is how a limited labor force would meet pension commitment. With rising life expectancy in recent years, the government would have to increase spending on health care as well, which further places a burden on income tax. For future generations, an aging population, therefore, means lower disposable income; for policy makers, it means a potential shortage of workforce numbers and lower capital investments due to savings for pensions. Popular sectors in the economy might switch to goods and services dedicated to seniors such as retirement homes. 

China’s population history at a glance

Why is China so populous in the first place? As the most populous country in the world, the Chinese population makes up about 20% of the world’s population, meaning one out of every five people worldwide live in China. This is due to China’s abundance in fertile lands that have been able to feed more people compared to wheat farms in European countries in history. The most important reason for China’s population dates back to World War II: immediately after World War II, China’s military forces were weak compared to western countries. In fear of a third World War and in an attempt to recover the economy, the Chinese government implemented the “Proud Mom” policy that granted the moms who conceived over five children the “Proud Mom” title and the society in general praised families with many children regardless of their financial pressure to raise them . The Proud Mom policy is one of the direct causes of both China’s current population and the notorious one-child policy that was abolished in 2016. Due to the staggering high living cost in China, the country’s population has declined significantly since 2010. Shanghai, Guangzhou, and Beijing are all on the list of the ten most expensive cities in the world. For example, the average living cost per person per year without rent in Shanghai is approximately $7636, but the average income is only $12,585; this leaves very little savings after rent with little space for raising children, especially while pursuing a high quality education (international schools cost an average of $30,000 USD per year). Recently, “0.24 billion Chinese are single” went viral on Tiktok. Since the majority of Chinese do not have children before marriage, the high single rate directly causes population shrinkage. Indeed, many Chinese people are focusing more on their work and personal life instead of having children.

“One major policy that has brought upon the most direct effect on mitigating issues surrounding an aging population is raising retirement age and pension eligibility.”

Japan’s solution to an aging population

Having the world’s highest population of senior citizens, the Japanese government has implemented policies and initiatives to lower the cost of childcare, boost labor force participation rate, and increase productivity. One major policy that has brought upon the most direct effect on mitigating issues surrounding an aging population is raising retirement age and pension eligibility. Japan has increased its retirement age from 60 to 65 and supports companies that retain retiree-age staff. These policies have successfully diminished the gap between life expectancy (84 in Japan) and the time at which individuals may exit the workforce. Eligibility of receiving pension payment has also been adjusted in accordance with retirement age and life expectancy. Japan is gradually raising the qualifying age for the Employees’ Pension Insurance programme to age 65 by 2025 for men and by 2030 for women. The combination of older retirement age and eligibility of pension payment could release the fiscal burden of pension obligations. 

Similarly, China can implement policies to boost labor force and birth rate. Lifting the strict immigration restrictions may be another effective policy to encourage labor participation like in many western countries such as the U.S. and Canada. In conclusion, an aging population is a pressing issue faced by many countries as a result of World War II and the fear of another to come. Having a higher life expectancy on top of an aging population, a country’s social structure, pension obligation, and economic productivity will all shift, urging appropriate fiscal policy to release the pressure on the general population. 

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