Volume 2, no. 4, August 2014

Author: Jun Saito, JCER

Japan’s declining population is a serious problem. Unless the nation can devise policy strategies to either arrest the decline or deal effectively with the impacts of it, Japan will find its path to sustained economic growth in the long-run blocked.

The most fundamental solution to the problem is to raise the birth rate while allowing mothers to work. The number of child-care facilities needs to be increased, regional child-rearing support systems need to be established and working arrangements reformed to achieve a better balance between work and family. Increasing child allowance to parents is an area which also requires immediate attention.

However, even if Japan were to succeed in raising the birth rate tomorrow, it would be 20 years before any impact on Japan’s economic growth were noticed.

One policy option that has received high priority is lifting the employment rate for women. However, lifting the female employment rate is only a medium-term solution to the declining population problem. When the female employment rate has increased to the point where the so-called M-curve (so named because the shape of the curve plotting female participation against age looks like the letter M) disappears, Japan will still need to find alternative means to offset the negative impacts of a declining population. Another option is to lift the employment rate among the aged, but even this is a medium-term solution.

Among the various policies on foreign workers, there seems to be a consensus in moving toward accepting highly skilled foreign professionals.

The remaining option is to allow more foreign workers to find employment in Japan, offsetting the negative economic impact of the declining population. There has not been enough discussion of this option in Japan.

Among the various policies on foreign workers, there seems to be a consensus for moving toward accepting more highly skilled foreign professionals. In fields where creativity is critical, the meeting of people with different social and cultural backgrounds stimulates the creation of new ideas, leading to innovation. Prime Minister Shinzo Abe is aware of this important dynamic. It was with it in mind that The Japan Revitalization Strategy (or Japan is Back document) announced in June 2013 initiated a revision of the existing point-based preferential immigration treatment system for highly skilled foreign professionals.

Policies focussing on unskilled workers, however, are more controversial. There are certainly merits in receiving more unskilled workers. Even if unskilled, workers engaging in domestic economic activity produce additional output and contribute to economic growth (of course, if the worker sends a part of his wage home, the contribution to the Japanese GNI will be different from the contribution to GDP). As long as they pay taxes and social security premiums, workers also contribute to the sustainability of the fiscal and social security systems.

Accepting more unskilled foreign workers should free up domestic workers who have benefited from Japan’s advanced education system to engage in more high-value added activities, resulting in an overall positive economic impact from migration.

On the other hand, accepting unskilled workers would nudge Japan’s comparative advantage from capital, knowledge, and technology intensive goods towards more labour-intensive ones. This would intensify competition with emerging and developing economies, and may make Japan’s problems worse.

There are other, more political problems with accepting unskilled workers, too.

As in other countries, there will be fears that foreign workers will take jobs that might otherwise have gone to Japanese citizens. This is a risk for both skilled and unskilled Japanese workers. Many advanced economies have introduced ‘labour market testing’, which requires that an increase in the intake of foreign workers does not affect the employment of domestic workers, in response to such concerns. However, Japan’s declining population implies a shortage of labour so there should be increasingly less competition for work. Furthermore, accepting more unskilled foreign workers should free up domestic workers who have benefited from Japan’s advanced education system to engage in more high-value added activities, resulting in an overall positive economic impact from migration.

There are also concerns that increased social tension between foreigners living in Japan and Japanese citizens may result, at least in some cases, in a decrease in public peace and order. It has also been pointed out that local governments would have to increase spending on housing and education for foreign workers and their families if the number of foreign workers increases.

But deciding not to accept more foreign workers on the basis of an uncertain increase in crime ignores the potential positive impact of having a more multi-cultural society. The social and economic impacts of an increase in the number of foreign workers in Japan should be addressed by separate sets of policies. As for the required increase in social spending by local governments on foreign workers, it could be offset by the additional tax revenue that economic growth brings to the region.

Perhaps the best thing for Japan to do would be to allow its own youth — who have far more of a stake in these matters than the traditionally powerful older generations — to shape Japan’s immigration policy.

Discussion surrounding these issues is necessary, but action must be swift. Neighbouring countries, such as South Korea, have reformed immigration policy and become more open to receiving foreign workers. Starting with the Act on Foreign Workers Employment in 2003, South Korea has introduced legislation to smooth the way for more foreign workers, and to support the children of international couples.

Japan is behind the pack. Even if reforms are implemented, they may not be enough to attract foreign workers, who may be more inclined to migrate to countries which have been more proactive.

Perhaps the best thing for Japan to do would be to allow its own youth — who have far more of a stake in these matters than the traditionally powerful older generations — to shape Japan’s immigration policy. The choice that faces them is stark: let Japan’s economic power wane as its population ages, or open Japan up to immigration so that it can re-emerge as a dynamic economy.

This article is an abridged version of the article ‘Can Immigration Save Japan?’ originally published in Japan Center for Economic Research (JCER) on 3 December 2013. The original article is available on the JCER website.

About the author

Jun Saito is Senior Research Fellow at the Japan Center for Economic Research (JCER), which is a collaborating institution of the AJRC. After receiving his BA and MA in Economics from the University of Tokyo, he joined the Economic Planning Agency in 1978. He held a number of senior positions in the Government before serving as the Director-General of the Cabinet Office’s Economic Research Bureau between 2007 and 2012. He has also spent some time outside the Government; studying at the University of Oxford, and working as economists at the International Monetary Fund (IMF) and the JCER. He joined the JCER, and was also appointed project professor of the Keio University Graduate School in 2012. He also teaches at Aoyama Gakuin University and the University of Tokyo.