Japan's aging population -- biggest test for economy?

Only a decade ago, Japan had one of the youngest populations in the developed world; by the end of the century, it will have one of the oldest. The economic and social challenges posed by this transformation are now reckoned by a number of experts to be far more serious than any petroleum cartel , heavy dependence on imported raw materials, or a world recession.

Questions are being raised about Japan's ability to cope with health care, lifetime employment, and adequate supplies of workers particularly in labor-intensive industries that affect the national growth rate.

Apart from two brief "baby booms" -- one immediately after the war and another between 1971 and 1974 -- Japan's birthrate has been in steady decline. After peaking at 1.5 million in 1973 it is now below the 1 million mark. The percentage of children in the 117 million population is at a postwar low of 23.6 .

The other half of the dilemma is that Japanese are now living longer than most people. As the death rate declines, the percentage of elderly is rising, and within 10 years experts believe 15 percent of the population will be over 65 years old.

Official figures show, for example, that it took Britain's elderly population almost half a century to grow from 5 to 12 percent. Japan will achieve that in under 35 years.

A young population is now believed to have been one of the keys to the Japanese "economic miracle" of the 1960s. While today's young Japanese often stay in school until their mid-20s, the majority of Japanese youth up into the mid-1960s joined the work force at 15, after completing only compulsory education.

Their absorption into the work force kept wage costs down and contributed to high productivity on the factory floor. There was a steady stream of cheap manpower from poor farming villages into the modern industrial society.

But all that has changed at great speed. The youth of that era has now reached middle age, and, in many instanes, is not being replaced. Some industries find this a blessing, allowing them to automate operations (auto manufacturing, for example).

Nevertheless, an aging population is creating a social revolution in Japan. Major enterprises, in need of increased capital investment in order to maintain the country's international competitiveness, find that the burgeoning number of older workers is siphoning off a large proportion of available cash. (Social welfare is still largely a private rather than a public responsibility).

Two of the nation's cherished pillars of postwar industrial peace have become the casualties of this trend: annual wage rises based on seniority rather than merit, and the lifetime employment guarantee.

Recession-hit industries are finding both a luxury they can ill afford. Redundant workers now are being encouraged to retire early, certainly some years before the mandatory retirement age of 55.

This limit was a realistic figure half a century ago when the average life span was 53, but is no longer practical in view of current life expectancy in the mid-70s.

Retirees are able to launch a second career until a government pension at 65. But the option of a second career is open only to a small percentage, and a state pension is still not available to one-third of today's work force.The system is still linked to the old idea that the elderly should be cared for in every respect by their children.

Unions and government agree the retirement age should be raised, and various industries are now moving in that direction -- upping the mandatory age to 59 or 60. But many are making clear that this can only be achieved it wage increases for older workers are granted purely on merit, and not by years of service -- a system which has prevented large-scale worker mobility until now.

But no matter what the business world might do, the fact remains that many Japanese are living 10, 15, and 20 years beyond retirement with precious little security.

The implications of a rapidly aging population are, in fact, a serious challenge to Japan's image of social cohesiveness.

Japan, after all, has long adhered to the Confucian ideal of respect for one's elders, including ensuring their welfare in the later years. Thus, attention is turning to what the government can do -- at a time when it is committed to cutting official spending to cope with the strain of chronic budgetary deficits.

Daisaku Maeda, an official of the Tokyo Metropolitan Institute of Gerontology , comments: "The increase of the aged population is laying a heavy burden on most societies today. In the case of Japan, however, the rapid increase in older people is making the situation even more difficult."