NCPA - National Center for Policy Analysis

SHRUNKEN JAPAN VS. BIG JAPAN

May 5, 2006

All over Japan, companies are bracing for a demographic wave. Beginning next year, members of Japan's baby boom generation start turning 60 and will begin dropping out of the workforce. A falling population will compound what is already known nationally as the "2007 problem," say observers.

The combination has already led to an increasingly tight labor market, reaching as high as 1.72 job offers for every job seeker in some areas. Japanese companies have already shipped more than 40 percent of their production capacity overseas, according to Jesper Koll of Merrill Lynch, but they can't outsource everything.

Instead, the labor squeeze is forcing Japan to consider social changes that were once unthinkable. For example:

  • Hiring more female workers -- Japan has one of the lowest rates of working women in the developed world at only 48 percent. By matching the United State's 60 percent rate, Japan could add more than 6 million jobs to the economy.
  • Retaining old-timers -- Companies are trying to keep older workers on the payroll to help fend off labor shortages, but generous government pensions make keeping workers from retirement difficult.
  • More immigration -- Foreign workers account for just 1 percent of Japan's labor force versus about 15 percent in the United States. Japan already relaxes visa requirements for specialized workers, but is reluctant to let less-skilled workers into the country.

Yusuke Takeuchi, a Labor Ministry official, insists that Japan can solve its labor shortages without looking overseas. Put women and the elderly to work, he says.

But Hidenori Sakanaka, retired head of the national immigration bureau office in Tokyo, says Japanese bureaucrats are in denial. "Look at the speed of the decline in population. It's unbelievable. Thirty million people will disappear," he says. "There are two ways to go: Shrunken Japan -- and learning to live with it; and Big Japan - where we accept foreigners."

Source: Paul Wiseman, "Wave of retiring workers could force big changes," USA Today, May 2, 2006

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