TOE Alert: Is Japan's potential growth really just 0.5%?

posted by Richard Katz on November 30, 2015

Found in Japan, categorized in Macro

Tags: Richard Katz TOE Japan economy

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The force of aging is going to reduce Japan’s workforce substantially—by 12% by 2030, according to a new study by Ministry of Health, Labor and Welfare (MHLW).


Key points:

·       Japan’s productivity growth faces two challenges from the labor side: a demographic crunch in which each worker must finance the livelihood of more retirees and an erosion of the skills of the labor due to the rise of non-regular workers to 37% of the labor force

·       By 2045, there will be 13% fewer workers per capita than there are today; so, by 2045, each worker must produce 13% more GDP per year just to prevent a fall in per capita living standards

·       That means the first 0.7% in annual labor productivity growth goes just to prevent a fall in living standards rather than supporting a rise in them

·       If the drop to 0.7% annual labor productivity growth seen in 2012-15 is really the “new normal,” that means zero growth in living standards over the next 30 years

·       On top of that, the rise in non-regular workers means a drop in worker skills because firms do much less training of non-regulars

·       That means less continuous improvement (kaizen) that less ability to fix problems as they arise; some material plants have already suffered downtimes because younger workers no longer had the skills to fix problems

·       There are potential remedies for the eroding skills problem at both the corporate and governmental levels, but they have not been applied


About Richard Katz

Richard Katz is Senior Fellow at the Carnegie Council for Ethics In International Affairs, the New York correspondent for Weekly Toyo Keizai, a leading Japanese business magazine, and formerly the editor of The Oriental Economist Report, a monthly newsletter on Japan.

Mr. Katz has taught about Japan’s economy as an Adjunct Associate Professor at the New York University Stern School of Business, and as a Visiting Lecturer in Economics at the State University of New York (SUNY) at Stony Brook.

Mr. Katz is the author of two books on Japan's economic travails and has just finished a third book on reviving entrepreeurship in Japan.

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