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

Headline

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).

Abstract

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