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Aging Population Cuts Labor Force

SNA (Tokyo) — In recent years, the Japanese population has been decreasing significantly and this has brought about major difficulties related to a workforce shortage, and also leading to a reduction in GDP growth.

In contrast to the years 1950 to 2017, when Japan’s population grew rapidly, it is expected to drop by 18 million by 2050, according to UN estimates. The population of Japan began its slide in 2017 and will likely accelerate in coming years.

In addition to the ongoing depopulation, since the year 2000 people over 65 years of age have outnumbered children under 14 years old. This fact is related to the high rate of life expectancy, which has risen by nearly 5% since 1995

Furthermore, the United Nations believes that working age people will diminish by around 50 million by 2100, if current trends continue.

Japan has one of the lowest fertility rates in the world, along with China and the United States. The fertility rate has fallen from 1.83 births per woman in 1975 to 1.41 in 2015. Nevertheless, the birthrate is expected to recover to 1.79 by 2100, if the United Nations has it right. Even still, this would be below replacement levels.

The aging population has a significant impact on Japan’s workforce which is burdened in economic terms by too many non-working elderly. The number of workers per retiree was estimated at 2.1 in 2017. This proportion may become even more unfavorable in the future.

The key problems caused by a smaller population include a workforce deficit, which is already impacting Japan’s economy.

Due to the Abe government’s policy of carefully limiting immigration, it seeks to invest in the robotic industry and to develop Artificial Intelligence to address labor shortages. Nonetheless, this might pose a threat to Japanese society as low-skilled labor and young people may see their employment prospects suffer through the introduction of the robots into their work environments. The sectors which are thought likely to be most affected by the automation revolution include agriculture, manufacturing, and customer service.

Another problem is that depopulation will probably lead to a deceleration in GDP growth. Recently, GDP growth has slowed down and Japanese demographics are clearly one of the key factors. Having experienced economic stagnation since the 1990s, Japan lags behind the world’s average GDP growth. For example, the IMF’s World Economic Outlook puts Japan’s GDP growth at 1.2%, which compares to 2.9 % among emerging markets and developing markets, if the comparison is made to the more robust class of developing countries.

Japan is weak in consumer consumption and investment. This, too, is associated with beginnings of the country’s depopulation.

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