As Việt Nam faces rapid population ageing, Japan’s experience offers valuable lessons in preparing for the demographic shift, particularly in addressing pressure on public finances, care worker shortages and changing family support.

Professor Shinji Yamashige of the Graduate School of Economics and the School of International and Public Policy at Hitotsubashi University spoke with Việt Nam News reporter Khánh Linh about Japan’s social security challenges and policy priorities for developing sustainable elderly care in Việt Nam.

Japan has been experiencing population decline and rapid population ageing for decades. Based on your research, what are the most serious consequences of these demographic changes for its social security system and family-based care?

Since the mid-1970s, Japan’s total fertility rate (TFR) – the estimated average number of children a woman will have during her lifetime – has remained below the replacement threshold of 2.0. The country’s total population began to decline in 2010, while people aged 65 and above now account for roughly 30 per cent of the population.

These demographic changes have created two major challenges for Japan’s social security system: resource mobilisation, or securing adequate fiscal revenue, and workforce procurement, or maintaining a sufficient supply of healthcare and long-term care workers.

As the elderly population grows, social security expenditure increases. Meanwhile, the shrinking working-age population (aged 15-64) constrains growth in social insurance contributions and tax revenue. Government borrowing has been used to finance the widening gap between public expenditure and revenue, pushing Japan’s gross outstanding public debt beyond 200 per cent of GDP.

Labour shortages have also become increasingly serious, particularly in healthcare and long-term care. The shrinking working-age population makes it harder to recruit and retain qualified workers. Efforts to contain public expenditure by limiting wages in the care sector have further discouraged recruitment and exacerbated staff shortages.

Before 2000, informal care for the elderly was primarily provided by women, many of whom were housewives. The introduction of Long-Term Care Insurance (LTCI) in 2000 facilitated access to formal care services, contributing to a rise in dual-income households and a decline in informal family-based care. However, this shift also led to increased public spending on long-term care and added to fiscal pressure.

Overall, population ageing and a declining workforce pose serious challenges to Japan’s ability to mobilise financial resources and secure the personnel needed to sustain its social security system.

Việt Nam is also ageing rapidly while still at a relatively early stage of economic development. What are the key lessons it should learn from Japan’s experience?

Japan’s experience offers both positive lessons and important warnings.

On the positive side, Japan has established an institutional framework for delivering social protection. The central government is responsible for policy design and fiscal resource mobilisation, while municipal governments organise local healthcare and long-term care services.

A key feature is the nationwide pooling and redistribution of social security revenues. This enables rural municipalities, which often have higher proportions of elderly people requiring care, to receive financial support. Financed through social insurance contributions and general taxation, the system helps ensure essential care for low-income elderly people in rural areas and contributes to narrowing rural-urban disparities.

However, its effectiveness depends heavily on local governments’ administrative capacity and the availability of qualified workers. Japan has invested in developing doctors, nurses and certified care workers through medical faculties and specialised training institutions across all 47 prefectures. These workforce development mechanisms were established gradually before the country’s period of high economic growth and expanded alongside its growing fiscal capacity.

Nevertheless, Japan’s experience also reveals a major institutional shortcoming – the failure to anticipate how social security expansion could affect family formation and demographic trends.

As public pensions, healthcare and formal elderly care services expanded, older people became less reliant on support from their adult children. At the same time, traditional family-based mutual assistance, including grandparents helping with childcare, became less prominent.

In my view, as the State takes over roles traditionally performed by families, economic incentives for marriage and childbearing weaken. This may contribute to lower fertility, population ageing and, eventually, population decline. The expansion of formal social security may therefore paradoxically reinforce these demographic trends.

Japan has since expanded public childcare infrastructure and family benefits to address declining fertility. Had the potential effects of elderly-focused social protection on family formation been recognised earlier, stronger support for families with children could have been incorporated into the system from the outset.

For Việt Nam and other developing economies, the key lesson is to consider the long-term demographic consequences of social protection policies. Expanding elderly care must go hand in hand with support for families, children and younger generations.

Japan has developed various approaches to elderly care, including long-term care insurance, home-based services and community-based integrated care. Which models would be most suitable for Việt Nam and how could they be adapted to local conditions?

A statutory Long-Term Care Insurance system is widely regarded as an effective way to expand elderly care services. By earmarking financial resources for care, it supports the development of formal care infrastructure, including private-sector providers. However, financing the system through social insurance contributions from the working-age population may have unintended effects on family relationships and fertility.

The introduction of public LTCI alongside public pensions may further reduce fertility for two reasons. First, elderly people relying on social insurance may have less need to provide childcare for their children in anticipation of receiving care from them in the future. Second, when the State provides elderly care, young people may have less reason to have children, as they no longer need to rely on them for support after retirement.

While high-income economies may have the fiscal capacity to introduce compensatory family policies, developing countries with limited budgets may find it harder to offset these effects, potentially threatening the long-term sustainability of the care system.

For Việt Nam, I suggest considering an alternative financing mechanism based on intergovernmental equalisation grants. Under this approach, the central government would provide targeted fiscal transfers to local governments to help equalise per capita elderly welfare expenditure across municipalities. Conditional grants earmarked for social care could ensure that funding reaches vulnerable elderly people rather than being redirected towards other local priorities, such as infrastructure or economic development.

In terms of service delivery, a combination of home-based care and community-based integrated care would be appropriate. Local governments could coordinate care providers and encourage mutual assistance within communities. This would be a cost-effective way to improve the well-being of frail elderly people while allowing them to remain in familiar surroundings.

Institutional care facilities also have a role to play. They can achieve economies of scale and improve efficiency through robotics and assistive digital technologies, particularly in countries facing labour shortages.

Japan’s Community-Based Integrated Care System offers a useful model for Việt Nam. It combines local service coordination with the development of healthcare and care professionals within communities, while enabling elderly people to live independently and with dignity in their own localities. Việt Nam could adapt this decentralised approach and use its remaining demographic dividend to develop local care services and workforce capacity.

What are the most urgent steps Việt Nam should take now to prepare for an ageing society and ensure sustainable elderly care?

To prepare for rapid demographic ageing and ensure the long-term sustainability of elderly care, I believe Việt Nam should prioritise three areas.

First, establish a sustainable institutional framework.

The goal should be to ensure equitable access to essential elderly care services across all geographical areas. This requires a framework capable of mobilising sufficient fiscal revenue and securing an adequate workforce at the local level. Việt Nam can begin by setting clear development targets and gradually strengthening institutional capacity.

Policymakers should also consider the demographic consequences of social protection policies, particularly their potential effects on family-based mutual assistance, marriage and fertility.

Second, strengthen local government capacity and fiscal decentralisation.

Market mechanisms alone may not ensure adequate and affordable social care for the entire population. Local governments, which are closer to residents, should therefore oversee the availability and quality of care services.

This requires greater administrative decentralisation, stronger local institutional capacity and adequate financial resources. The central government should establish formula-based fiscal transfers, alongside technical assistance and training to improve local administrators’ capacity to manage care services.

Third, develop a local care workforce.

Việt Nam needs qualified healthcare, elderly care and childcare professionals in every region to ensure high standards of service delivery. Formalising care services as paid employment can also create job opportunities for young people who wish to remain in their home regions rather than migrate to major cities.

This would help meet the growing demand for care workers while supporting rural development, strengthening local communities and reducing rural-urban disparities. — VNS