People cross the street in the busy downtown area of Akihabara in Tokyo
Leopatrizi | Istock | Getty Images
Japan celebrated “Respect for the Aged Day” earlier this week, with the national holiday underscoring a rather problematic fact – the country has a record number of elderly citizens to celebrate.
Government data released before the event showed that Japan’s population aged 65 and over reached 36.25 million.
While the country’s overall population is decreasing, the segment aged 65 and above has grown to 29.3% of the population, the highest in any country, according to the Bureau of Statistics of the Ministry of Interior and Communications.
According to Robert Feldman, chief economist at Morgan Stanley MUFG Securities, the data add to concerns about demographic change and the country’s labor crisis.
A survey from Teikoku Databank last month showed that 51% of companies across all sectors in Japan feel they are short of full-time employees.
“The labor shortage is what it is today,” Feldman said, noting that it is particularly felt in labor-intensive industries such as food service.
By 2023, the number of Japanese workers aged 65 and over will increase for 20 consecutive years to a record 9.14 million, according to data from the Bureau of Statistics.
Feldman warns that as these older workers begin to retire from the workforce, there won’t be an equal number of younger workers to replace them.
There is no one-size-fits-all solution
Based on recent trends, the proportion of elderly people in Japan is expected to continue to rise, reaching 34.8% in 2040, according to the National Institute of Population and Social Security Research.
Meanwhile, a new research note from Feldman Morgan Stanley estimates that based on past demographic trends, the total workforce could decline from about 69.3 million in 2023 to about 49.1 million in 2050.
The Japanese government has recognized the economic and social harm that can result from this trend and has taken measures to combat it.
Several measures have been aimed at reversing the country’s declining birth rate, with Prime Minister Fumio Kishida’s office rolling out policies such as providing more funding for childcare and support for other childcare facilities in the country.
Local governments have even taken steps to support public dating apps that aim to help Japanese people mingle, marry and have children.
An increase in the birth rate, however, will not be enough to solve the labor shortage in the short term. As such, Japan has continued to open up to more migration in recent years, reaching a record 2 million foreign workers by 2024 and seeing up to 800,000 more in the next five years, according to local media reports.
Reversing the country’s expected demographic losses over the next few decades will require the country to increase its foreign workforce at an even faster rate, by the tens of millions, according to Feldman.
“I don’t think that’s going to happen, which means that a large part of the decline in the domestic workforce will have to be made up by the better productivity of the young people who will stay,” Feldman said.
Creating this productivity growth among workers will require more capital to invest in worker productivity and the implementation of new technologies such as AI and automation, he added.
Earlier this year, Carlos Casanova, senior economist for Asia at UBP, told CNBC’s “Squawk Box Asia” that AI technology is often touted as a solution to Japan’s demographic crisis, but so far nothing has been able to alleviate it.
“We have an increasingly consumer-oriented society, so you want to have a large workforce making money and spending money to maintain economic momentum,” Casanova said.
“AI can be part of the solution, but there are other things that need to be done,” he said, suggesting that in addition to immigration, the country is working on social and structural changes such as increasing the female labor force participation rate.
