The Strategist

Labor crisis in Japan is around the corner

07/07/2017 - 12:02

Japan is drowning in an abundance of jobs. Yet, however similar it appeared to capitalistic dreams, this is in fact a huge economic problem.

Mstyslav Chernov
Mstyslav Chernov
The huge labor shortage can be explained by Japan's disappointing demographic data, which have been observed for decades. The unemployment rate may be staggeringly low - at around 2.8%, but the falling volume of workforce is retarding growth and causing enterprises to close or severely restrict services.

At the end of May, the Ministry of Health, Labor and Welfare of Japan announced that there are 1.48 vacant positions for each applicant. In Tokyo, the ratio is 2: 1, sometimes 3: 1 or even 4: 1 in the nursing and construction sectors. The problem looks even worse given that the number of laborers and the birth rate keep decreasing. According to forecasts, the number of Japan’s population will fall from 127 million to 87 million by 2060.

Japan needs workers, and it needs them now. Efforts to raise the male retirement age to nearly 70 years, increase working time and scale up investment in robotics failed. Japan deliberately ignored the most obvious decision: to hire refugees who come to the country.

Japan accepts fewer refugees than almost any other developed country. Last year, only 28 of 10 901 applicants were granted asylum (0.26%), which was more than in the previous year. UN Head Antonio Gutierrez called for a revision of the Japanese system, saying that it is "too tight and too restrictive." If humanitarian considerations are insufficient, the financial imperatives must provide a sufficient incentive in order to make Japan take an action.

Economists from the Prime Minister's office at the IMF warned that if Japan does not overcome its reluctance and does not expand the number of migrants it receives, its fatal combination of the world's highest life expectancy and one of the lowest birth rates will be a huge burden for the next generation and will stall growth of the third largest economy in the world. According to some estimates, Japan requires an average of about 609 thousand immigrants a year for almost 50 years to restore its workforce to the level of the 1990s.

Unskilled labor is prohibited from recruiting In Japan, and the ridiculous literal interpretation of the refugee convention means that even asylum seekers who flee from the civil war are usually rejected. Only a small number of refugees (just 18 last year) have an opportunity to move from abroad.

Prime Minister Shinzo Abe made it clear that Japan is closed to constant migration flows - even for the Syrians fleeing the war. 

In a report released in 2016, Oxfam opposed several countries, including Japan, for accepting 0% of the estimated share of Syrian refugees. Oxfam estimates that Japan should have resettled 49,747 Syrian refugees, which is roughly the same as the number already taken by Germany and Canada.

Instead, Japan undertook to accept a maximum of 150 Syrian students with their families during five years. Another 69 Syrians applied for refugee status in Japan between 2011 and 2016. Only 7 were accepted, and 52 people received a right to humanitarian assistance within one year.

Japan claims that its policy is not a cynical attitude, but financial responsibility. Instead of paying about $ 10,000 per capita for resettlement, Japan became the fourth largest donor to the United Nations High Commissioner for Refugees last year, allocating $ 165 million to the fund.

Nevertheless, the need for workers still remains. And that is why it is not surprising that Abe softened the requirements for business leaders regarding the foreign labor force. Recently, a quota for the "trainees" scheme was expanded to 200 thousand people. However, the program is temporary and grants only three-year visas. After this time, the workers must return home.

Meanwhile, 10,000 or so asylum-seekers who are already in the country are not legally entitled to rent apartments, open bank accounts or sign mobile phones contracts. They can legally work only if they arrived in the country under a valid visa. This is impossible for those who fled their homes not having time even to collect documents. Many of those who have refugee status are looking for work in the black market, which business leaders are already using as a source of cheap labor.

The way Japan behaves with its aging society allows the tight labor market to closely monitor other countries that will soon face the same problems. Japanese business leaders warn that if the country wants to remain competitive, its immigration policy must be changed.