Japan faces labor shortages and demographic disaster as aged inhabitants hits file excessive

Japan commemorated its “Respect for the Aged Day” earlier this week, with the nationwide vacation underscoring a considerably problematic reality — the nation has a file variety of aged residents to have fun. 

Government data launched forward of the occasion confirmed that Japan’s inhabitants of individuals aged 65 and over had risen to an all-time excessive of 36.25 million.

Whereas the nation’s general inhabitants has been declining, the phase of these aged 65 and above has grown to 29.3% of the inhabitants, the very best share of any nation, in keeping with the Statistics Bureau of the Ministry of Inside Affairs and Communications. 

In response to Robert Feldman, chief economist at Morgan Stanley MUFG Securities, the info fuels additional issues about demographic shifts and a labor crunch within the nation.

A survey from Teikoku Databank final month confirmed that 51% of firms throughout sectors in Japan really feel there’s a scarcity of full-time staff.

“The labor scarcity is simply as unhealthy as ever,” stated Feldman, noting that it is particularly felt in labor-intensive industries resembling meals service.

In the meantime, 2023 noticed the variety of Japan’s employees aged 65 and over rise for a twentieth consecutive yr to achieve a file 9.14 million, Statistics Bureau information confirmed. 

Feldman warned that as these aged employees start to retire from the workforce, there will not be the identical variety of younger employees stepping as much as exchange them.

Based mostly on latest tendencies, Japan’s proportion of aged individuals is predicted to continue to rise, hitting 34.8% in 2040, in keeping with the Nationwide Institute of Inhabitants and Social Safety Analysis.

In the meantime, a latest analysis be aware from Morgan Stanley’s Feldman estimated that based mostly on previous demographic tendencies, the whole labor pressure might drop from about 69.3 million in 2023 to about 49.1 million in 2050.

The Japanese authorities has acknowledged the economic and societal harms that would consequence from these tendencies and has taken steps to counter them.

A number of measures have been aimed toward reversing the nation’s declining birth rates, with Prime Minister Fumio Kishida’s workplace rolling out policies resembling offering extra funds for child-rearing and help for extra child-care services within the nation.

Native governments have even taken steps to help public dating apps which are aimed toward getting Japanese individuals to mingle, marry and have kids. 

Boosting start charges, nonetheless, will do little to unravel labor shortages within the quick time period. So, Japan has been steadily opening as much as extra migration over latest years, hitting a record 2 million foreign workers in 2024 and eyeing as much as 800,000 more over the following 5 years, in keeping with native media reviews. 

Changing anticipated demographic losses within the nation over the following couple of many years would require the nation so as to add foreign-born employees at a a lot sooner price, within the tens of hundreds of thousands, in keeping with Feldman.

“I do not suppose that is going to occur, which signifies that a big portion of that drop within the home labor pressure must be made up by higher productiveness of these younger individuals who will stay,” Feldman stated.

Creating this productiveness progress amongst employees would require extra capital to take a position into employees’ productiveness and the implementation of recent applied sciences resembling AI and automation, he added.

Earlier this yr, Carlos Casanova, senior economist for Asia at UBP, instructed CNBC’s “Squawk Field Asia,” that AI technology has often been cited as the solution to Japan’s demographic disaster however had to date performed little to mitigate it.

“We’ve got a society that’s more and more shopper oriented, so that you do wish to have a giant workforce that’s being profitable and that’s spending cash with a view to maintain financial momentum,” Casanova stated. 

“AI might be a part of the answer, however there are different issues that they need to do,” he added, suggesting along with immigration, the nation works on social and structural adjustments resembling growing the feminine workforce participation price.