Japan – the oldest country in the world
In Japan, people aged 65 and older now comprise nearly 30% of the population, making the Japanese one of the oldest populations in the world. This demographic shift has been accompanied by a decline in overall population since 2010, while the working-age population already peaked around the year 2000.
Japan leads the world in terms of life expectancy, with an average lifespan of 84 years. This remarkable longevity can be attributed to remarkably low mortality rates from ischemic heart disease and cancer, partly due to a low obesity rate resulting from dietary habits characterised by low consumption of red meat combined with a high consumption of fish and plant-based foods. Conversely, Japan’s total fertility rate (TFR) has been below replacement level since the 1970s, ranking among the lowest worldwide. In 2023, the TFR fell to a historical low of 1.2 despite the Japanese government’s efforts to increase fertility rates, including financial incentives for families, parental leave, and expanded childcare support.
The declining working-age population and labour shortages have prompted significant transformation in Japan’s economy and workforce. Companies have accelerated digitalisation, introduced flexible work arrangements, offered higher salaries, and extended retirement ages to adapt to the shifting demographics. Furthermore, firms have rehired retired employees, and pension plans have been modified to improve coverage of workers in non-standard and informal employment arrangements. These initiatives have contributed to increased labour productivity and participation rates among women and older workers, mitigating the demographic drag on the economy.
Meanwhile, imported labour has begun to rise over the past decade. Although the proportion of foreign workers in Japan remains relatively low at 3.3% (compared to 18% in the United States), a noticeable upward trend has emerged since 2015. If the current pace of influx persists, the labour force may remain relatively stable over the next decade. Japan plans to further ease visa restrictions and allow longer stays for foreign workers in the coming years. While public attitudes towards accepting foreign workers have becoming increasingly positive, public opinion remains ambivalent as many Japanese resist the idea of accepting an increasing number of immigrants. Thus, related policies are likely to remain subject to public and political debate.
China – adapting to rapid demographic change
Demographic change is a global phenomenon, but it is unfolding particularly fast in China, once the most populous country in world. China’s population is ageing faster than most other nations and has started to shrink much earlier than expected. Between 2010 and 2024, the proportion of the population aged 65 and older rose from 8.9% to 15.6%, the same share of elderly population as in the United States and South Korea. According to UN projections, it will reach more than 30% by 2050, comparable to Japan today.
China’s rapid fertility decline is unique, as it was primarily driven by birth control policies in the early stages, particularly the one-child policy introduced in 1980. Although it is no longer in force, it has resulted in fewer children being born and more men than women, leading to a demographic imbalance between genders and a dwindling pool of women of childbearing age. Today’s low birth rates can also be attributed to the high cost of living and education in China, since raising a child costs nearly seven times the country’s GDP per capita, significantly exceeding Japan, the United States, or Germany. As a result, demographics have played a crucial role in driving regulatory reform aimed at addressing the rising cost of housing, education, and healthcare, collectively referred to as the ‘three big mountains’, in recent years.
The demographic transition has led China’s working-age population to peak in 2015 and decline since. While a continuation of this trend is almost inevitable, the labour force is currently smaller than it needs to be. Implementing further reforms of the pension system and the household registration (‘hukou’) system could improve the utilisation of the existing labour force potential and mitigate labour shortages. Recent policy reforms to gradually increase retirement ages, which had remained unchanged since the 1950s and are among the lowest in the world, were finally implemented at the beginning of the year. While the hukou system has been incrementally relaxed, it continues to restrict the ability of rural migrants to settle permanently in cities, hindering labour mobility. To tap into the growth potential of the most developed and innovative regions, it is essential to remove restrictions on labour flows into these areas.
For the long-term prospects of the Chinese economy, it is increasingly important to enhance productivity gains by ensuring a more efficient resource allocation and fostering productivity improvements to compensate the decline in the labour force.
India – a young and ageing population
India has surpassed China as the world’s most populous nation, boasting the largest youth population globally, with over 65% of the population under the age of 35 and less than 7% aged 65 and above. Notably, India’s working-age population is expected to continue growing until 2047, positioning it as the world’s largest source of potential labour. Nevertheless, ageing is rapidly progressing, with India’s fertility rate dropping below replacement level in 2020 and the elderly population expected to double and reach 15% by 2050.
India’s sizeable and growing working-age population presents a significant opportunity, particularly as countries around the world are facing declining work forces and labour shortages. India can still benefit from the so-called ‘demographic dividend’, where the working-age population outnumbers the non-working-age population, offering a substantial competitive edge and chance for rapid economic expansion. However, while there is plenty of potential, being a young but ageing society comes with its own challenges.
To realise the benefits requires creating sufficient jobs. Specifically, India must generate 10–12 million new jobs annually to accommodate all the fresh entrants to the workforce. At the same time, employability and skill-development remains an area for improvement, as sectors like information technology and financial services struggle to find qualified professionals to fill vacant positions.
With India’s fertility rate below replacement levels, the window to capitalise on the demographic dividend is limited, with its benefits expected to dissipate by 2050. However, the economy’s productivity, as well as labour intensity and labour participation (especially among women), hold considerable potential for improvement, which could help to compensate for the diminishing demographic dividend.
The rapidly ageing population in India highlights the need for strategic investments not only in education and innovation but also in healthcare, pension, and social security schemes. A pressing concern is the erosion of financial security among the elderly, approximately 40% of whom are within the lowest wealth quintile and nearly one-fifth lack any form of income.