Economist on Japan’s future demographics: No mention of NJ labor influx

Hi Blog. Here’s a really sophomoric article from The Economist, which discusses Japan’s future demographics, yet mentions not a word about the influx of foreign labor (even if only to dismiss it as a possibility).

Any serious debate cannot omit this factor; even Japan’s economic media (Shuukan Diamondo June 5, 2004) admits that without the NJ workforce, internationally-competitive domestic factories would not work and we’d have a severe shortfall of payers into Japan’s future.

Why is a magazine as thoughtful The Economist sticking its head in the sand on this issue, even resorting to the “grown-up children who call themselves adult Japanese men” stereotypes by the conclusion of this article?

Cannot ignore global labor mobility, which (with closing on a million NJ workers in Japan) is definitely a factor in Japan’s future demography. Just like in any other developed country. Wish the media would stop assuming that Japan is uniquely able to resolve all of this by itself.

Guess this is what happens when you close your Tokyo office and have to report remotely all the time… Anyway, for shame, Economist. So much newsprint devoted to so much topical reporting! Arudou Debito in Sapporo


Japan’s changing demography
Cloud, or silver linings?
Jul 26th 2007 | TOKYO
From The Economist print edition

Japan’s population is ageing fast and shrinking. That has implications for every institution, and may even decide the fate of governments

FOR intriguing evidence of the way Japan’s 127m people are greying faster than any others on earth, look at the boom in pokkuri dera. Pokkuri is an onomatopoeic word for a sudden bursting, while a tera or dera is a Buddhist temple. Pokkuri dera, then, are shrines where many of Japan’s older people go to pray not only for the long life that they are increasingly coming to expect, but also for a quick and painless death at the end of it. Their visits have revived the fortunes of old-established temples, notably in the ancient capitals of Kyoto and Nara, while temples elsewhere have reinvented themselves as pokkuri dera with the financial blessings in mind.

More dramatic evidence of the ageing effect may come with nationwide elections on July 29th. Japan’s older voters have the ability, for probably the first time in democratic history, to humiliate and even bring down a government, that of Shinzo Abe, prime minister since September 2006. The elections are for half the seats in the upper house of the Diet (parliament), and are ordinarily something of a political sideshow: after all, it is the lower house that chooses the prime minister. A general election in 2005 gave the ruling coalition led by the Liberal Democratic Party (LDP) an easy majority. Yet these elections, in which the coalition may lose its upper-house majority, have become a vote of confidence in Mr Abe, whose poll ratings have slithered since almost the moment he came to office.

While the prime minister’s priorities are patriotic ones—instilling a sense of national pride in schoolchildren and pushing for a revision of Japan’s pacifist constitution—those of ordinary Japanese lie with bread-and-butter issues. The economy is now into its fifth year of recovery after a decade-long slump, but decent jobs are still short. As for pensions, everyone knows that a shrinking workforce supporting an ever higher number of retired people adds to an already strained budget.

In this context, a fiasco that was uncovered in May at the government agency that handles pensions could not have come at a worse time for Mr Abe. The agency, which appears never to have come to terms with the digital age, is unable to match 50m computerised pension records to people who have paid into public schemes. A further 14m records, it seems, never made it into the computer system at all.

If disgruntled voters punish the ruling coalition on July 29th with a heavy loss of seats, then the LDP may seek a new leader. If Mr Abe survives as prime minister, he will be under pressure to form a government of a different hue, one that brings livelihood issues to the fore. Either way, grey power will have established itself as a force to be reckoned with.

Certainly Japan is greying at an astonishing rate. Shortly after the second world war the proportion of Japanese over 65 was around 5% of the population, easily below that in Britain, France or America. Today the elderly account for one-fifth of the population, and average lifespans have grown remarkably. Life expectancy today is 82, up from a little over 50 in 1947.

By 2015 the proportion of elderly will have risen to one in four of the population, or more than 30m. This is thanks mainly to an unusually large baby-boom generation passing into the ranks of the old. Between 1947 and 1949, 2.7m children a year on average were born to surviving Japanese soldiers who returned from war, married and settled down—about a third more than in previous years. This year, the baby-boom generation began to retire (at present, 60 is the mandatory retirement age at most companies). The size of their pensions obligations has funding implications both for companies and for government. But there is another dimension to the baby-boomers’ retirement: these workers drove Japan’s economic transformation of the 1970s and 1980s. They are a reservoir of technical and managerial skills.

Who to pass these on to? Japan’s birth rate fell below the replacement rate of 2.1 in the early 1970s. It slid to a low of 1.26 in 2005, before inching up last year to 1.32—nobody calls it a recovery. In 2005 Japan’s population began to fall in absolute terms, despite increasing life expectancy. It is about to shrink at a pace unprecedented for any nation in peacetime. The National Institute of Population and Social Security Research estimates a total population of 95m by 2050, with the elderly accounting by then for two-fifths of the total.

The disappearing young
A shrinking population already has implications for the workforce. Currently, some 16m Japanese are in their 20s. This number will shrink by 3m over just the next decade. This spring, during the annual job-recruitment round, new university graduates found themselves in record demand, and not just because of the recovering economy: over the coming years, companies will have fewer young graduates to choose from. That is nice for young job-seekers, except for one thing: as Japan ages and shrinks, workers must support an ever larger proportion of retirees. By 2030, demographers say, Japan will have just two working-age people for each retired one; by mid-century, short of a rapid and unlikely return to fecundity, the ratio will rise to three for every two retirees.

Can a working population support such a number of future retirees? Today’s younger workers appear not to think so. Two-fifths of them are not paying contributions towards the fixed portion of their state pension scheme (current contributions fund present, not future retirees), suggesting they don’t believe that the scheme will be viable when they retire. And they may be right.

It is in the countryside that demographic changes hit particularly hard. There the population has been falling for years, as younger villagers head for the city in search of work and play. Today, those over 65 account for two out of five people in rural communities, and three-fifths of all farmers. The future of farming in such places is in doubt. Growing rice, the staple crop, requires communal efforts in irrigation, flood control and the like. Mutual obligations in communities run even to organising funerals. So when young villagers leave for the city, everyone feels the loss. An earthquake on July 16th in Niigata prefecture brought the problem home; the 3,000 evacuees still living in shelters are predominantly elderly, unable to fend for themselves in their damaged houses.

The tiny hamlet of Ogama, in Ishikawa prefecture near the Sea of Japan, is responding most radically to population decline. (The community has three men and six women between the ages of 62 and over 90, down from a population of 50 a generation ago.) The survivors of this remote and stunning valley have canvassed an industrial-waste company from Tokyo and, if the prefecture approves, the valley—paddy fields, vegetable plots and cedarwood plantations—will disappear under 150 metres (500 feet) of industrial ash. The villagers plan to use the money from the sale to build new houses in the nearby township, to where the ancestral shrine has already been moved.

For years, the regions have brought their problems to the capital. On any working day in Tokyo, the corridors of the transport and infrastructure ministry are thronged with supplicants from the provinces clutching maps of the latest scheme for a road into the forest or an unnecessary dam. Yet the days of lavish spending on public works are nearly over, while the central government has slashed tax remittances to localities. With pinched resources and the prospect of steep falls in the population, local governments are being forced into the most radical reorganisation in half a century.

A couple of much-publicised municipal bankruptcies have helped sharpen minds. Yubari, a former mining town on the northern island of Hokkaido, has seen its population fall from 100,000 in the 1950s to 13,000 today. Costly promotions to raise the town’s profile—including a film festival and the marketing of Japan’s priciest melons—have saddled the town with a crippling ¥63 billion ($519m) in debts. Last year Yubari was declared insolvent.

No nearby municipalities particularly want to be Yubari’s friend, but elsewhere the central government is urging villages and towns to merge in order to pool resources and gain a more secure tax base. Yamanashi prefecture south-west of Tokyo, a place of peach orchards and factories making industrial robots, exemplifies the trend. In 1888 Yamanashi had 342 administrative units; today, it has shrunk to 28 municipalities and is still declining. The pace has quickened greatly since 2003.

But municipal mergers are unlikely to be the end of the matter. Prefectural leaders and central government are talking about a radical rehaul of local government in which prefectures merge to form larger blocks—states, in essence. Before this dance has begun, prefectures are already eyeing up the most attractive partners.

To shrink a city
Elsewhere, administrators are starting to think about the implications of population decline, among other things, on running bigger cities. Aomori, a city of 300,000 at the very top of Honshu, Japan’s main island, has a policy of actively stemming the urban sprawl that blights so much of Japan. Aomori has a proportion of elderly and single households somewhat above the national average. It also has huge quantities of winter snow, thanks to the moisture that Siberian winds pick up across the Sea of Japan: ten metres can fall in a season. In a bad year snow-clearing can cost ¥3 billion: a sum which Takeshi Nakamura of the city government says could build two new schools.

In response, the municipal government set about trying to shrink the city. A limiting arc was drawn around its south side (the north is bounded by a wide bay), and some of the city’s main institutions—the library, city market, hospitals and museums—were moved back to the middle of town. Public transport was improved, and snow was cleared from main arteries as well as pedestrian streets to allow people to move easily about the centre. The improvements, in turn, have encouraged new apartment blocks to be built near the centre, says Mr Nakamura, and plenty of older people tired of shovelling snow are moving into them.

Aomori’s ideas about a “compact city” have been driven by the problems of snow. All the same, says Takatoshi Ito of Tokyo University, who sits on Mr Abe’s Council for Economic and Fiscal Policy, the central government should be urging other cities to think along similar lines. Population decline does not mean there is no urban sprawl. Mariko Fujiwara of the Hakuhodo Institute of Life and Living points out that the number of one-person households will overtake all other types this year, while the total number of households is still rising in Japan, to almost 50m.

Kaisha care
Still, the greatest response to demographic change in Japan needs to come from companies. Despite wrenching change over the past 15 years or so, the Japanese company, or kaisha, still plays a more paternal part in employees’ lives than in any other well-off society, shaping not just their work but also their social life. Indeed, with long hours in the office as well as punishing sessions in bars with colleagues afterwards, the two are often indistinguishable. Atsushi Seike, a labour economist at Keio University, argues that Japan’s problem is less that demography is changing too fast, than that employment and retirement systems designed for an earlier age are not changing fast enough.

In particular, these systems have not kept pace with greatly longer lives. True, the government has begun to raise the age at which people are eligible for employee pensions, which are made up of fixed and earnings-related parts. Eligibility for the fixed part has been raised to 62, and will climb to 65 by 2014; eligibility for the bigger, earnings-related part rises to 65 by 2026. This is too little, too slow. Mr Seike argues that the state minimum pensionable age should be raised swiftly to 70.

Meanwhile, companies are also adjusting too slowly. Most firms have a mandatory retirement age of just 60. A recent law requires them either to raise their mandatory retirement age over time, or to provide retraining and re-employment programmes to keep on employees. Most have opted for the latter; since most companies have formal pay scales that reward seniority over merit, raising the mandatory retirement age would be expensive. However, one big company, Kawasaki Heavy Industries, has broken new ground: in 2009, it will raise mandatory retirement to 63 while slashing pay.

Getting rid of mandatory retirement altogether would hasten the end of seniority-based pay, allowing older workers (who in Japan are eager to work for longer) to fill jobs for which they are best suited. A system based more on merit would give able younger workers a leg-up too.

Raising the retirement age to 70 would roughly halve the rate of decline in the workforce. Raising the participation rate of women—at 63% of working-age women, below Britain or America (around 68%)—would do much to slow it further. A number of factors militate against working women. A higher proportion of women than men find jobs only on temporary contracts, which pay on average 60% less than regular work. Male chauvinism still dominates in the office: many jobs are advertised as available only to younger women, while fewer than 10% of professional managers are women, against 46% in America. Meanwhile, companies’ long hours (often a substitute for productivity) make things hard for working mothers. So too does a shortage of child care: just a third of children over three and under school age go to kindergarten, compared with an OECD average of three-quarters. Huge numbers of women drop out of the workforce entirely once they have children. In Japan, says Jeff Kingston of Temple University in Tokyo, women have to choose between work and family.

Meanwhile, the OECD notes a positive correlation between fertility and female employment: the easier it is made for women to do rewarding work, the more likely they are to consider having children. So policymakers in Japan are now starting to grapple with the effect of Japanese work habits on the low birth rate. Hideki Yamada, director for policy on ageing and fertility in the Cabinet Office, says surveys suggest that nine-tenths of Japanese aged 18-34 not only want to get married, but often want to have two children. With Japanese precision, policymakers have calculated that without impediments to marriage and child-raising, Japan’s birth rate would jump to 1.75.

Policy, says Mr Yamada, should be directed towards making that leap. Attempts began under Mr Abe’s predecessor, Junichiro Koizumi, with the introduction of financial support for families with young children and expansion of child-care facilities. Now a novel concept is creeping into government documents, “the work-life balance”, for which, tellingly, there is no common Japanese expression. In late July, business and union leaders met Mr Abe and other ministers to discuss how to reach such a balance.

“It’s embarrassing to say this,” admits Mr Yamada, “but after a first child is born, the husband often doesn’t do his bit helping out at home, and that engenders anxiety in the wife about having a second child.” That is partly cultural habit. Boys are pampered at home by their mothers and expect the same treatment—no nappy-changing, no washing up—later from their wives. But it is also because of the long working hours companies expect. So, says Kuniko Inoguchi, minister for gender issues and social affairs under Mr Koizumi, policy needs not only to be directed towards encouraging more women to work, with more nursing care for elderly relatives, better child care, more flexible working arrangements and so on. It also needs to make life better for working men.

A better work-life balance is good for companies, which can thereby attract better talent. It is also good for working men, says Mrs Inoguchi. They can enjoy a proper private life, spending more time at home—always assuming, and it is no foregone conclusion, that Japanese wives are prepared to tolerate them there.


2 comments on “Economist on Japan’s future demographics: No mention of NJ labor influx

  • Assuming that growth is the only way and finite ressources will always be available is mainstream, but… When fossil energy ressources get depleted (think $100 a barrel of oil in the next few months), crops will be much harder to get out of the ground, 120 millions people much harder to feed.
    Add climate change and a global struggle (meaning war) for ressources, and maybe island isolation, lack of fossil fuel, and a dwindling population will be a unique chance for Japan to go through this period in a less catastrophic way than countries that still push their natality (think India), have valuable fossil fuels (think Iran), or are easily accessed by land (think mainland Europe).
    In my opinion the population of Japan has displayed a unique understanding of the finiteness of our ecosystem. Sexism has certainly helped, too…

  • Sophie, your comments are indeed incredibly refreshing. In the face of dwindling natural resources and an environment increasingly under immense strain, in all corners of the globle continued economic growth and expansion seems to be the singular goal. Quality of life is no longer a political issue becuase governments have decided to put in the “too hard” basket. In this light, I see it as a positive sign that the Japanese Government has erred on the side of caution (or, procrastination, if you like) in regards to immigration. Immigrants, as proven in other parts of the world, gravitate to major city centres. Japan is not suffering from any shortage of labour in these areas.

    Dave, while I agree with your critique of the above Economist article, I don’t think the crusade in support of rights for overseas residents here in Japan should be intergrated into the wider immigration issue.

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