The dramatic aging of many countries’ populations will present immense economic, political, and social challenges. Market-oriented reforms can help.
A round two-thirds of people live in countries with sub-replacement fertility rates, meaning that the average woman is giving birth to fewer than 2.1 children. While the U.N. forecasts the world population to grow until the mid-2080s, many countries are already dwindling in numbers.
Japan, which descended into sub-replacement territory in 1974 and never recovered, will likely be the first country to undergo exponential depopulation. New data, released by the Japanese government, indicate a population loss of more than 900,000 in 2024, a record drop in numbers as the population shrinks for its 16th consecutive year.
The percentage of Japan’s population age 65 and older is nearly three times larger than the percentage age 14 and younger — a demographic inversion that will intensify in the coming years because of an ultra-low fertility rate of 1.15. Japan’s national debt as a percentage of GDP is the highest among advanced economies, with an aging population driving its social security deficits and mounting fiscal crisis.
Other developed economies, such as South Korea, Poland, Latvia, and Lithuania, will follow closely behind Japan on a steep demographic descent. Even rich countries with liberal immigration policies, as well as poor countries with presently high but quickly declining fertility, will likely experience “Japanification” later this century or early in the next. The Lancet projects that at least 95 percent of countries will dip below replacement-level fertility by 2100. With a sustained annual influx of about 1 million immigrants, the U.S. population will peak in 2080 and then start to decline.
“Japanification” will present immense economic, political, and social challenges, including skyrocketing old-age dependency ratios, spiraling debt and deficits, exorbitant taxation, and even intergenerational resentment between the young and the old.
With fewer people seeking employment and roofs over their heads, workers may enjoy higher wages and more abundant and affordable housing. But with a shrinking tax base to subsidize public expenditures such as old-age benefits, workers will shoulder a heavier tax burden that may partially offset higher wages and cheaper housing. Falling consumer demand could also go hand in hand with a reduced need for labor, and this will coincide with advancements in AI and automation misplacing certain types of work.
Reforming entitlements should be a top priority in aging and depopulating countries, not only to avoid fiscal calamities but also to keep more money in young people’s bank accounts and empower them to start families, invest in capital markets, and stimulate economic growth.
However, the prospects for balanced budgets and fiscal prudence in a graying world are grim. In democracies, old people vote more than young people do, and the elderly are unlikely to support candidates or political parties that pledge to revoke the generous benefits they were promised. As age structures shift in favor of older demographics and improvements in health and medicine prolong the lives of senior citizens, young people will be increasingly dispossessed of political power.
In addition, crashing fertility rates will undermine social capital, resulting in fewer close relatives whom people can rely on during times of economic hardship or poor health, especially at the end of life. A lack of social capital will increase dependency on taxpayer-funded public support, thereby compounding the fiscal woes of an aging country.
Overtaxed working-age populations and economic stagnation may foment hostility between the younger and older generations, with the elderly increasingly viewed as a burden on the economy and society and a detriment to the financial security and freedom of young people. In 2021, Yale economics professor Yasuke Narita went so far as to suggest that the “mass suicide” of Japan’s elderly was the “only solution” to the country’s demographic problem.
Some believe that AI and immigration are the universal panaceas to low fertility and aging, but we shouldn’t have blind faith in “messianic” machines or view reproduction as the duty of women in poor countries while insisting that it’s an impediment to women’s freedom in rich countries. AI and robotics may assist with knowledge creation and productivity, but machines don’t buy groceries or pay taxes. The only sustenance they require every day is electricity.
Immigrants who contribute to the economy as workers, consumers, and taxpayers can delay population decline and mitigate the challenges of an aging society, insofar as the immigration process is orderly, legal, and meritocratic. But rich countries can’t outsource reproduction to poor countries forever, especially since poor countries’ fertility rates are also waning — and at a faster pace than in many rich countries. Moreover, incentivizing all the young, educated, and entrepreneurial talent of poor countries to immigrate to rich countries diminishes the economic potential of the developing world.
A depopulation of the coming magnitude, encompassing nearly all nations and cultures, is unprecedented in world history. A vaguely comparable example is the Black Death, which eliminated between 30 and 50 percent of Europe’s population in the years 1347–1351.
The negative labor supply shock of the plague contributed to higher wages among the fortunate survivors and a “golden age of labor,” but, as with most pandemics, those who succumbed to the disease were disproportionately older. The Black Death did not inflict upon late Medieval Europe the quandary of an inverted population pyramid in which the old outnumbered the young.
The good news is that today’s global reproductive recession provides a unique opportunity for critical market-oriented reforms. Deregulation will be essential to spur innovation and entrepreneurship, with fewer smart, ambitious young people generating new ideas and forming businesses. A decline in specialization and productivity will thwart aspirations of autarky and highlight the advantages of free trade. Globalization and economic integration will be indispensable for small, depopulating countries that increasingly depend on capital, goods, and services imported from abroad.
The extraordinary and daunting obstacles of “Japanification” will test the problem-solving capabilities of 21st-century governance, ingenuity, and economic modeling. As we navigate the downward slope of the demographic winter, a robust commitment to human dignity and open markets will offer the best roadmap to sustain our affluence and facilitate a smooth and steady transition to an emptier planet.