Per Capita Growth
By David Henderson
We often hear about the growth rate of real GDP in various countries. But it’s important to know, especially when the growth rate is low, what the growth rate of real GDP per capita is. Take Japan, which has had a feeble growth of real GDP. But it’s also had a feeble growth of “capitas,” that is, population.
Here’s what Alex Pollock wrote in August 2016:
If we measure by growth in real gross domestic product (GDP), without considering changes in population, Japan’s economic growth is far behind that of the United States. From 2000 to 2015, its real GDP grew an average of 0.72 percent per year, while U.S. real GDP grew an average of 1.77 percent.
In average growth rates, more than 1 percent per year is a big difference, indeed, as it compounds over time. Over 15 years, this annual growth rate difference would add up to U.S. GDP being 30 percent larger, compared to 11 percent larger for Japan, a difference of 19 percentage points.
However, economic well-being is not measured by aggregate GDP, but by GDP per capita. The question is how much production there is per person. In this case, measuring per-capita growth gives us a very different outcome.
In 2015, Japan’s population was essentially the same as it was in 2000, with an average annual growth rate of 0.01 percent. The corresponding annual growth rate of the U.S. population was 0.87 percent. So the U.S. added 39 million more people over the period to provide for.
Thus real GDP growth per capita in Japan was 0.71 percent per year. In the United States, it was 0.89 percent – a much more similar number. The growth rate advantage over Japan, measured per capita, is reduced to a modest 0.18 percent.
Of course, real GDP matters too. One reason Japan will likely have a much worse (than our) problem of funding seniors’ benefits over the next few decades is that Japan’s population growth is essentially zero. So there are not as many young people, relative to the population of seniors, to pay those payroll taxes and other taxes that fund the benefits.
Maybe the Japanese government should consider allowing people age 18 to 35 to immigrate. A million of them a year would help.
HT2 Jeff Hummel.