Declining Birthrate, Aging Society, and Social Security

Japan is experiencing a decline in its birthrate and population aging at a speed rarely seen elsewhere in the world. This creates serious challenges for the sustainability of the social security system, requiring social planning that takes future generations into account.

Basic Knowledge

Japan's total fertility rate fell to a record low of 0.97 in 2023, and the population has been declining since reaching a peak of approximately 128.08 million in 2008. The aging rate, the percentage of people aged 65 and over, was approximately 29% in 2023, one of the highest levels in the world. The main problems caused by the declining birthrate and population aging are ① labor shortages, ② increased social security costs, and ③ a greater burden on the working generation.
Japan's social security system consists of four pillars: ① social insurance (pensions, medical care, nursing care, employment, and workers' compensation), ② public assistance (livelihood protection), ③ social welfare (support for people with disabilities, children, and others), and ④ public health. The largest areas are pensions and medical care. The pension system uses a pay-as-you-go system in which the working generation supports older people, so population aging and a declining birthrate increase the burden on the working generation.
The concept of fairly distributing burdens between present and future generations is called intergenerational ethics (intergenerational justice). How to maintain a balance between social security "benefits and burdens" is one of the most important policy issues in contemporary Japan.

Further Study (Background and Significance)

Japan's pension system achieved "universal national pension coverage" in 1961, creating a system in which all citizens joined some form of public pension. However, as the birthrate declined and the population aged, the 2004 pension reform introduced a macroeconomic slide mechanism, which limits the growth of pension amounts below rises in prices and wages. Medical expenses are also increasing because of population aging. The 2025 problem, when the baby-boom generation becomes 75 or older, and the 2040 problem, when the baby-boom junior generation becomes 65 or older, are predicted to put pressure on public finances.
To improve the sustainability of social security, a multifaceted approach is needed, including ① utilizing women, older people, and foreign workers; ② improving efficiency through digitalization; ③ balancing reductions in benefits with increases in burdens; and ④ strengthening preventive medicine. From the perspective of intergenerational ethics, some also point out that financing social security through debt, such as government bonds, shifts the burden to future generations.

Points to Note (Easily Confused)

① Distinguish between the pay-as-you-go system (the working generation supports older people) and the funded system (individuals save for their own future pensions). ② Social insurance (mandatory participation and premium payments) and public assistance (minimum livelihood protection funded by taxes, such as livelihood protection) are different systems. ③ Remember accurately the thresholds for an aging society (7%), an aged society (14%), and a super-aged society (21%). ④ The total fertility rate differs from the birth rate because it is an indicator that removes the effects of age structure.

Practice

1. Explain the effects of a declining birthrate and population aging on the social security system, focusing on the pension system's "pay-as-you-go system."
2. What is the concept of "intergenerational ethics"? Explain it in relation to social security.
3. Give two possible measures for improving the sustainability of the social security system and describe each.