Japan is a densely populated country. As a result, housing is extremely expensive in its major cities. Its subway system is so crowded that Tokyo has people who push people into the subway cars to ensure that no space is wasted.

Given this situation, it was striking to see that the Independent report on Japan's "demographic crisis" and ABC News tell us about Japan's "dire picture." Their concern is that Japan's population is projected to shrink by about a third over the next 50 years.

While these news outlets might be terrified by the prospect that the Japanese will pay less for housing, it is not clear why the Japanese should have such concerns. The implication is that the increase in the ratio of retirees to workers will impose a devastating burden on the working population.

Those who know arithmetic don't share such concerns. Productivity growth in Japan has averaged almost 2.0 percent annually over the last two decades. At this rate, output per worker hour will be nearly 170 percent higher in 50 years.

This means that if retirees consume 80 percent as much as active workers, and the ratio of workers to retirees fall from 2.5 today to 1.8 in 50 years, then consumption per worker and per retiree can increase by 120 percent over this period, assuming no reduction in hours worked.

In fact, this would understate the actual gain in living standards since there will be fewer children to support and there will also be gains in living standards associated with less crowding. (Tokyo won't need to pay workers to push people into subway cars.)

In short, worrying about demographics might be a good way to create jobs in the current economic environment, it need not be a concern for serious people.


[Thanks to Keane Bhatt and Victor Silberman.]