Asia Economics Blog

Co-authors: Norma Mansor; Halimah Awang
 
Malaysia is experiencing a demographic transition characterized by a steady increase in the number and proportion of elderly persons in the population. The share of population over age 65 is projected to rise from 7.5 percent in 2020 to 14.5 percent in 2040. Yet even as health and longevity have improved greatly, employment rates among older workers have declined.

Extension of the working life would benefit older persons by augmenting income security and providing a sense of fulfillment. It would benefit society at large by mitigating worker shortages and reducing the burden of elder care. Many countries have raised or are considering raising the statutory retirement age. However, extending the retirement age is a viable policy option only insofar as improved health of older persons allows them to be productive without risk to their well-being. We estimate the potential for longer working lives by treating a drop in mortality among older persons as a proxy for improved health and employment capacity.

Co-authors: Wong Koi Nyen; Goh Soo Khoon

A large and young labor force has been instrumental in China's economic growth for several decades. The age structure of the population is shifting, however, with the population in the working age range of 15 to 64 declining steadily since 2015. A decades-long fertility rate of below replacement level and increasing life expectancy have produced a dramatic ageing of the population. Despite the government's introduction of pro-birth policies, the fertility rate remains low in 2023 at 1.7 per woman. The shrinking workforce is putting upward pressure on wages causing China to lose the low-cost advantage that has propelled its growth for so long. The rapid “graying” of the workforce over the next decade raises concerns about the future pace of economic growth. Such concerns were galvanized in 2022 when China's population declined year on year from 1.4126 billion to 1.4118 billion.

Japan has, for several decades, experienced a toxic combination of an aging and shrinking population, slow growth, and very large fiscal deficits and debt. Looking forward, Japan’s potential growth is expected to approach zero, in large part owing to its demographic profile (see IMF).

These interrelated issues have led policy-makers in Japan on a search for meaningful structural reforms to raise potential growth and offset the impact of eventual fiscal adjustment. One area that has received significant attention has been the Japanese  labor market, which is characterized by low female labor force participation; a significant duality between heavily-protected workers and “non-regular” workers with few protections and lower productivity; and limited flexibility regarding working conditions and modalities (Figure 1).