Profound demographic changes in the G-7 economies, particularly aging populations and low birth rates, have posed a very real challenge tor policymakers.
In response, G-7 economies have sought to change the makeup of their domestic labor forces.
One of the clearest examples is in Japan, where the labor force now features foreign workers in a way that was unimaginable 50 years ago and has led to a more constructive economic outlook.
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Foreign workers now comprise just over 4% of Japan’s total employees.
That’s a great improvement compared to just 10 years ago, but it is still low compared with the United States, where nearly 20% of workers are foreign born, or Canada, where at least a quarter of workers are foreign born.
Japan’s embrace of foreign-born workers did not happen overnight and there are undoubtedly more changes to come. Women, for example, now make up a bigger share of Japan’s labor market.
But it’s one way to address the challenge of an aging population. Nearly 30% of Japan’s population is over 65, which places undue strains on younger workers.
And there are signs that the broadening of the workforce is helping to improve the macroeconomic outlook in Japan.
Japan’s real GDP growth reached as high as 1.9% in the second quarter last year, followed by 1.5% growth in the third quarter—a striking change from years of stagnant or negative growth.
Even as GDP growth has moderated to a 0.4% average in the past three quarters, that easing can be attributed, at least in part, to rising tariffs and an energy shock.
The takeaway
The ebb and flow of Japan’s economic growth is coming from the rebound in residential investment and from the business-sector’s investment in intellectual property. The latter is the key to reestablishing Japan’s status as a technological giant.
Yet, growth is dependent on both investment and labor. Given Japan’s aging population, that implies taking the steps to grow the labor force through an infusion of foreign-born workers.
