Many immigrants arrive at work, their revenues increase GDP growth and government receipts, negative economic impacts of the aging population and increased rates of elderly dependence (ratio of retirees to workforce). It helps to counter it.
Migration is not the only way the country can help offset the impact of older adults. Expanding working life, increasing labor participation, or increasing family size has similar economic impacts, but it tends to be politically and socially controversial.
Raising retirement age tends to spark opposition, as seen in 2023 in France, when plans to increase retirement age by two years caused widespread strikes and riots. Over the past few decades, more and more countries have introduced explicitly promoted policies designed through welfare payments and tax credits, increasing fertility rates. Evidence regarding the impact of such policies is mixed. Most studies suggest that even expensive programs have slight increases in fertility rates. There is also evidence that such a scheme has a greater impact on the timing of births where women can have children sooner than the total number of children born in the long term.
Migration undoubtedly offers a more immediate way to strengthen the economy in the face of an aging population. Most Western economies have descended the path of increased migration in some parts of recent years, at least for that reason.
Migrations are helpful, but rarely redirect demographic changes. Commenting on the population estimates of ONS, Madeleine Sumption, director of the Immigration Observatory at Oxford University, said, “How interesting is the few immigrants (impact) that is something like geriatric dependency… you You'll expect. It'll grow, but in the end, immigration doesn't change the composition of age much” (BBC Radio 4, January 28, 2025). This is because immigrants age and eventually adopt the family size of existing residents.
Sumption cited a Canadian study that showed that age dependence rates continue to rise even if Canada doubles its population. Similarly, Nordregio, a Nord-Europe think tank, estimated that it had a population of 5.2m in 2016, and net migration of more than 40m by 2080 would be required.
Due to the lack of dramatic changes in fertility rates, it is less likely to change the direction of demographic changes and the impact on growth rates. Migration is not a panacea, but it is one of many useful policies, along with an increase in retirement age, a decrease in unemployment and inactivity, and increased productivity. (It is worth noting that, as Sumption pointed out in an interview with the BBC, it is not just a matter of immigration.
Japan is the world's leader in dealing with the impact of an aging population. Its population has declined from its peak at 128.1m in 2010 to 123.6m today. Since 2000, Japan's old age dependence rate has risen faster than elsewhere, reaching a significantly higher level than any industrial country. Japan is a rare test case. It is a country that seeks to deal with aging and shrinking populations without accepting relatively high levels of movement in North America and Western Europe. (Japanese net immigration has averaged around 186,000 per year over the past decade. Compared to the population, this is about a third of the UK's rate.)
A shrinking population means that Japan currently has one of the slowest growth rates in the Western world. Over the past 14 years, the Japanese economy has grown by 0.9% per year, with almost half of the European average and one-third of the proportion seen in the US, Australia and Canada. The immigration policy, which had little restrictions, would have undoubtedly accelerated Japan's GDP.
Japan is cautious about using transitions to offset the economic impact of an aging population, but has successfully used other levers. Japan has boosted the workforce by delaying retirements, increasing the employment rates of women, and reducing inactivity and unemployment. Due to the extremely low labor participation rate in the 1990s, Japan is currently one of the highest rates among developed countries, higher than Norway and Sweden.
Japan's growth rate is small, but measured by the growth in living standards, Japan is steadily progressing during the period of population decline. Growing decent productivity and bringing more people to work supports production. As a result, since 2010, per capita GDP has grown faster since 2010 than in the UK, Canada, France and Spain. These higher migrant countries enjoy excellent headline GDP growth, but are slowing down the standard of living.
There is no easy solution to combat the economic impact of an aging population. The transition is one response, which quickly improves GDP growth. Japan's experience shows that there are other approaches. Especially when you are focusing on supporting standard of living, rather than GDP growth.
