By 2050, roughly 40% of Japan's population will be over the age of 65 years. This has serious implications for the country’s economy and labor market. With 27% of its population older than 65 years in 2017, Japan is the country with the greatest percentage of elderly people in the world. Due to this trend, as well as a high life expectancy and a low fertility rate that has been hovering around 1.4 births per woman, Japan is hurtling towards a population decline. The Population Division of the United Nations Department of Economic and Social Affairs suggests that by 2050, Japan’s population will drop below the 100 million mark, down from roughly 127 million at present. Concurrent with this development, Japan’s health ministry predicts that the country will also face a workforce decline of 22% between 2017 and 2040. Translated into numbers, this means that Japan will be confronted with a workforce shortage of 6.44 million people by 2030.
As a result of this demographic shift, a relationally small number of active workers will have to sustain a larger, retired portion of society. This situation will cause tremendous healthcare and pension spending that will drive Japan’s economy further into stagnation. At the same time, the lower percentage of active workers will negatively impact tax revenues, which will also decrease. Aware of the challenges of an aging and shrinking population, Japan’s Prime Minister Shinzo Abe has implemented reforms known as Abenomics to fuel the state’s financial flows. A downsized economy would go hand in hand with a decrease in Japan’s significance in global politics, a scenario that the government is presumably seeking to avoid. This somber prospect is spurring decision-makers to take countermeasures in the shape of technological development. Japan’s next generation may end up living in a smart society that policymakers have titled Society 5.0.
The concept of Society 5.0 rests on a network of digital infrastructure consisting of artificial intelligence (AI), big data, robotics, the Internet of Things (IoT), blockchain technology, and virtual reality that is expected to permeate the entire Japanese society. Mitigating the risks of an aging society and workforce deficits would be one of the benefits of this technological progress. Japan may be able to transform the disadvantage of its demographic change into an advantage by relying on robotics and AI.
Using technology to supplement understaffed sectors could pave a way out of Japan’s labor shortage dilemma. As the home of numerous technological innovations, Japan is expected to find all manner of solutions. One of its major telecommunication businesses, Softbank, demonstrated the country’s technical capabilities by installing Pepper, a robot offering the latest iPhone to customers. Such progress may be advantageous, yet humans could lose their jobs due to labor automation at the same time. While manufacturing jobs in the automotive and electronics sector are already strongly dependent on automation, an increasing number of government jobs could be transferred to machines and AI in the future. A point in case would be the Japanese Ministry of Economy, Trade, and Industry, which has tested an AI system that helps public servants compose documents for cabinet and parliamentary sessions.
Aside from technology, new government policies are also expected to alleviate job market disruptions by facilitating employment for women and immigrants. Japan has long maintained rigorous immigration policies, however, the recent relaxation of these regulations points toward Japan’s urgent need for additional labor in certain industries. Two sectors that will be affected most by the anticipated workforce deficit are agriculture and construction. A new immigration law adopted on April 1, 2019, will introduce about 340,000 new foreign workers into the industrial and manufacturing sector within the following five years. The inherent risk of this situation is the potential clash between automation and human labor in the same sectors. Progress in robotics could imperil the blue-collar jobs of foreign workers in Japan and undo the government’s efforts. It is thus clear that striking a balance between the integration of technology and foreign workers into the job market will be the key to efficiently mitigating labor force shortages.
A final point to note is that technology does not only bring challenges but also market opportunities that can boost the economy. As Japan’s society ages, companies have found products for elderly customers to be a worthwhile investment. AI systems prove particularly useful in medical care where they provide walking and movement assistance to patients. Meanwhile, smaller technical devices facilitate the daily life of the elderly. Devices that can be hidden in shoes or clothing can help track dementia patients who may get lost as they wander from their homes. Cell phones and various apps can relay the life signals of senior citizens living alone to their relatives or caretakers. Other smart sensors can aid people who are in danger of experiencing a heat stroke. This is particularly relevant since elderly people were affected most by the record-breaking heat wave in Japan in the summer of 2018. The range of services offered to the elderly in Japan is vast and does much to mitigate the societal effects of its demography-related economic distress. If Japan becomes a frontrunner in elderly-focused technological innovation, it can function as a model for other developed countries like Germany, France, or Italy which will need to learn how to manage their aging populations in the future as well.
