The declining birth rates and increasing longevity in advanced economies within Asia pose significant challenges to traditional retirement systems and economic growth. This demographic shift has already reduced annual GDP per capita growth by 0.2 percentage points over the past 25 years, with potential further declines of 0.4% annually over the next quarter-century. To counteract these effects, countries must focus on enhancing productivity, workforce participation, and migration policies.

Enhancing Workforce Participation and Productivity

In response to dwindling birth rates, advanced Asian economies are exploring ways to bolster their labor forces. Increasing workforce participation among older adults and women has become a critical strategy. For instance, Japan has seen a notable rise in labor force participation among those aged 50 to 79, from 55% in 1997 to 56% in 2023. This trend is particularly significant as it contrasts with decreasing participation rates in other regions. Additionally, the number of working individuals aged 65 and older in Japan exceeds that of any European or North American country. The participation rate for prime-working-age women in Japan has also surged from 68% in 1997 to 82% today.

Boosting productivity is another essential tool for mitigating the impact of demographic changes. Historically, advanced Asian economies have experienced robust productivity growth, averaging 1.7% annually over the past 25 years, higher than North America's 1.5% and Western Europe's 0.8%. China's productivity growth has been especially remarkable, averaging 7% annually from 1997 to 2023. However, sustaining such high growth rates will be increasingly difficult as populations decline. Countries must leverage new technologies, including generative AI, to maintain and enhance productivity levels. By integrating advanced technologies into various sectors, these nations can offset the negative effects of shrinking workforces and ensure sustained economic vitality.

Reconsidering Migration and Social Policies

Migration presents an alternative solution to address labor shortages caused by low fertility rates. Traditionally, net migration in advanced Asian economies has been low or even negative. However, recent trends indicate a shift, with Japan leading the way in reversing this pattern. Encouraging skilled migration could provide a much-needed influx of workers, supporting economic growth and alleviating pressures on social systems. Moreover, these countries possess certain structural advantages compared to their Western counterparts, having made fewer societal commitments to support seniors. For example, Australia and Japan allocate transfers covering 42% and 51%, respectively, of the gap between elderly labor income and expenditures, compared to 59% in Germany and 76% in France.

To navigate the impending demographic challenges, advanced Asian economies must adopt innovative approaches to retirement systems, emphasizing efficiency rather than expanding deficits. Engaging older workers, harnessing technological advancements, and effectively attracting migrants are crucial steps toward sustaining economic success. By implementing these strategies, these nations can set a precedent for others facing similar demographic shifts, ensuring resilience and continued prosperity.