The life expectancy of the Japanese people has significantly increased during the last five decades. The increase in life expectancy among the Japanese population has created an aging problem in which majority of senior workers are retiring while there are few young workers replacing them. Even though the population aging problem is common in many countries around the world, the problem is acute in Japan. For instance, there is significant labor shortage in car manufacturing and electronics companies because of the disproportionate rate existing between retiring workers and new recruits. The aging problem is negatively impacting on labor supply, an essential factor of production in industries. By affecting labor supply, population aging directly affects Japan’s industrial growth and Gross Domestic product (GDP). What is the nature of Japan’s population aging problem and labor shortage? How can the declining labor force resulting from population aging be addressed?
The Population Aging Problem
Japan is the world’s third largest economy after the United States and China. Despite the impressive economic performance, Japan is experiencing challenges with its aging workforce. More than 20 percent of the Japanese population comprises of individuals aged 65 years and above (Simran n.p.). The aging trend is posing challenges regarding work succession in manufacturing industries. Furthermore, Simran estimates that by 2030, one in every three people will be aged 65 years and above, and one in five individuals will be aged 75 years and above (n.p.). There is dire need for the government and businesses to put measures in place to address the workforce aging that may cripple varied manufacturing and service industries in the next decade. Notably, the rapidly aging Japanese workforce is affecting the growth of industries as companies are losing competent workers at an alarming rate with no clear plans on addressing the effects on labor supply, a critical factor of production. Thus, workforce aging is an acute problem that is poised to transform the operations and growth of Japan companies and industries.
Aging Population and Labor Force Supply
The aging problem in Japan has caused one fundamental issue that is impacting on the growth of companies and industries. The proportion of the elderly workers has massively increased in recent years. As such, the aging problem is impacting the growth of industries because it essentially reduces labor supply. The International Monetary Fund (IMF) claims that a rapidly aging population and declining labor force in Japan is hampering growth and development of industries (n.p.). The IMF further confirms that the impact of aging is poised to reduce Japan’s annual gross Domestic Product (GDP) growth by one percent in the next three decades (n.p.). The findings by IMF exemplify that human capital is critical for total factor production (TFP) and that aging workers impacts on productivity envisioned under the TFP. Japan’s motor vehicle manufacturing and electronics enterprises are likely to lack adequate labor force to drive and sustain current level of production (Dallin 8). Consequently, if Japan is unable to sustain and maintain its current level of production, its position as the third largest economy in the world may be jeopardized (Debroux 85). Furthermore, Japan may also give up its position as the leader in use of cutting-edge technology to develop products (Debroux 88). For that matter, forfeiting its position as the third largest economy in the world, and its global reputation regarding use cutting-edge technology may devastate growth and development of Japanese industries and companies. Hence, Japan’s aging problem can no longer be overlooked if the nation is to initiate new economic reform initiatives.
There are broad arrays of proposed solutions that can be implemented to address the aging workforce problem in Japan. Foremost, Japanese companies can attempt to increase the working hours so as to maintain or increase the level of production. However, increasing the working hours may not address the labor supply problem as Japanese workers are already overworked. Japan is facing an issue regarding unused annual holiday with only 52.4 percent of workers taking their entitled paid leave (Dallin 9). Second, companies can attempt to increase the workload for each worker. This, according to Summers, may escalate work stressors on the elderly thereby compromising their overall health and wellbeing (5). Workers need to be physically and mentally sound to work effectively, especially in the demanding manufacturing companies.
Traditionally, the Japanese people already work past their retirement age, and it is unlikely that increasing the minimum retirement age may have a significant impact on productivity. Per Valentina, Japanese companies granted workers lifetime employment that emphasized on seniority and experience in the past (n.p.). The trend has significantly changed in recent years as the current labor market requires productive and innovative workers. The emphasis on seniority is gradually diminishing due to changing market demands and perception of customers. Taylor and Earl argue that while strictly increasing the operating hours may not work effectively as a means of sustaining the level production, increasing workers’ productivity through change in work processes may guarantee optimistic results (19). The workers may become more productive over time through significant improvements in the production processes guidelines and procedures. The increase in productivity may reach a level in which it offsets the declining numbers of active workers.
Development in technology use at work represents a plausible solution to the decreasing labor force problem. Companies, including the Small Medium Scale Enterprises (SMEs) should be encouraged to use technology in production such as deploying robots to accomplish varied production tasks. Summers acknowledges that as work activities become more automated, the companies may need less physical personnel to perform similar tasks undertaken by robots (6). With increased level of production assisted by technology, Japan’s manufacturing industries would be efficient to sustain or increase its production levels, even with few people required to drive production (Valentina n.p.). Enhanced technology use would help Japan maintain its level production to align with the required quantity of goods for the export market. With enhanced exports, Japanese companies may continue generating reasonable profits later reinvested to expand operations.
Increasing the labor participation of women is another reasonable solution proposed by Japan’s Prime Minister. Japan remains a traditional society in which women are not obliged to hold employment position to support their families. It is customary for women to take care of families while relinquishing full-time jobs to their husbands (Dallin 10). Nevertheless, since the labor force is shrinking due to aging, women who had previously left job positions to take care of families should be encouraged to step up and eliminate the shrinking labor supply problem. The women presently working can equally attempt to advance their careers to assume more senior leadership positions in Japanese companies (Dallin 12). The proposal to actively involve women in the labor market can encourage women’s rights and improve Japan’s international labor and employment practices (Simran n.p.). By providing women with meaningful work opportunities, Japan will be able to revamp its labor force and consequently improve the nation’s GDP. Improving the GDP is critical as it shows that there is significant progress being made in the economy occasioned by growing manufacturing industry.
The aging population problem in Japan is acute. As such, there is serious shortage of workers in Japan due to aging of workers. Japan’s aging problem cannot be overlooked because it directly impacts on GDP and growth of companies. Since the population aging remains a multifaceted issue, varied approaches can be taken by the Japanese government and companies to lessen the negative impacts aging has on industrial growth and development. An attempt should be made to increase the productivity of workers by enhancing the effectiveness of production activities, procedures and guidelines in companies. Consequently, companies should be encouraged to utilize technology when performing automated tasks and thus reduce the number physical workers needed. Ultimately, the government should initiate reforms to encourage the participation of women labor force in Japanese manufacturing and technological industries.
Dallin, Jack, “The Issue of Japan’s Aging Population”. Law School International Immersion Program Papers, No. 8, 2016, pp. 1-14.
Debroux, Philippe. “Elderly Workers in Japan: The Need for a New Deal.” Management Revue, vol. 27, no. 1/2, 2016, pp. 82–96.
IMF. “Japan: Demographic Shift Opens Door to Reforms”. International Monetary Fund, February 10, 2020. https://www.imf.org/en/News/Articles/2020/02/10/na021020-japan-demographic-shift-opens-door-to-reforms. Accessed July 13, 2020.
Simran, Walia. “The Economic Challenge of Japan’s Aging Crisis”. The Japan Times, November 19, 2019. https://www.japantimes.co.jp/opinion/2019/11/19/commentary/japan-commentary/economic-challenge-japans-aging-crisis/#.XwwcWqEza1s. Accessed July 13, 2020.
Summers, Lawrence. “The Age of Secular Stagnation: What It Is and What to Do About It.” Foreign Affairs, vol. 95, no. 2, 2016, pp. 2-9.
Taylor, Philip, and Catherine, Earl. “Making the Case for Older Workers.” Management Revue, vol. 27, no. 1/2, 2016, pp. 14–28.
Valentina, Romei. “How Japan’s ageing population is shrinking GDP”. Financial Times, May 16, 2018. https://www.ft.com/content/7ce47bd0-545f-11e8-b3ee-41e0209208ec. Accessed July 13, 2020.