Japan's low birth rate is often framed as the definitive crisis facing the country. A shrinking population constricts the labor force, drives economic stagnation, exacerbates elderly care costs, and eventually leads to cultural collapse. But is this actually true? I argue that Japan's shrinking population is not all bad, and may actually present a hidden advantage to navigating this century's artificial intelligence revolution.
To begin, I'd like to address the argument typically presented against Japan's current demographic trends. Broadly, Japan is believed to be experiencing a collective action problem. While it may make sense for individual families to have few or no children due to monetary and temporal constraints, collectively the country as a whole should want more kids. Therefore, government policies are needed to incent childbirth — which we see implemented today with middling efficacy.
But why should Japan want more children? The obvious, direct consequence of a lower birth rate is a constricting labor supply. But fewer workers is not necessarily a bad thing. Thinning labor puts upward pressure on wages, increasing living standards and reducing unemployment. In fact, reducing the labor supply is the rationale commonly given (though arguably justified) for reducing immigration in my home country of the United States. The counterbalancing risk, of course, is that expensive labor makes Japanese products less competitive, reducing exports and shrinking GDP.
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