Japan defies demographic destiny by boosting workforce

Despite a shrinking and ageing population, Japan is continuing to add to its workforce through greater female and older worker employment. PwC’s latest Global Economy Watch explores how Japan is counteracting its challenging demographics and whether this can continue.

Japan’s population is contracting, since its peak at 128 million in 2010, it has declined by 1.3 million people. Additionally, its population is old: 28% are over 65, compared with 18% in the UK and 15% in the US. Yet the number of people working in Japan continues to rise, up by 1.7% in 2018. This growth was not enabled by a reduction in high unemployment; joblessness has been low and falling for years.

Japan’s female employment rate is a key contributor. In 2002, there was a ten percentage point gap between female employment rates in the US and Japan, but Japan has now overtaken the US. A higher proportion of women are also returning to work sooner after having children than they were previously.

Government policy in Japan has aided this, by increasing the number of nursery places and making provision for all 3-5 year olds free by 2021. A law passed in 2015 demands that larger firms set targets for hiring and promoting women. Other legislation caps overtime at 100 hours a month, a move designed to both prevent over-work and generate new roles where demand clearly exists.

The Japanese government is also aiming to push up the retirement age for state workers from 60 to 65 and boost the public pension for those that opt to defer drawing from it. Japan is already leading the world by retaining so many older workers; its rate of around 25% is higher than that in the US (18%) and the UK (10%).

Mike Jakeman, senior economist at PwC, comments:“Japan’s already strong labour market has found a way to strengthen further despite it’s unfavourable demographics. Former barriers to entry, such as a culture of long office hours, entrenched gender roles and a lack of flexibility have shifted thanks to government intervention. This has enabled parts of the population previously deterred from working, such as women and older people, to participate.

“There’s a reluctance to embrace higher immigration in Japan, but parliament has approved the creation of two new visas, which could see immigration increase.

“But the remarkable performance of Japan’s labour market will require more births and more immigrants to be sustained.”

If Japan’s decline in unemployment rate continues at its average rate of the past eight years, the economy would hit zero unemployment in 2027. It is possible that this date could be deferred if the labour force continued to grow, but the eventual impediment to this will be its shrinking population.