Japan v. OECD: Labor Shortage and Technology

Japan just elected a tough-on-immigration PM, Sanae Takaichi, who has promised more checks/controls on who gets in. She joins a slew of elected officials who campaigned on improving domestic life versus bringing in outsiders, and this vote effectively ends the immigration dreams of some who saw fleeting signs in recent years of Japan "opening up."

So where does this leave Japan in terms of its more than 6MM labor shortage?

It's no secret by now that the country is a super-aged society, defined by at least 20% of the population being 65 or older. Japan's 65+ share is actually 29.1% according to recent stats published by the Statistics Bureau of Japan, positioning it at the forefront of managing all the challenges that ride along with its demographic reality.

The OECD's Employment Outlook published this summer focused exclusively on answering a very relevant question for Japan: can OECD countries get through the coming demographic crunch?

The tl;dr on this is, essentially, yes, with some very tough trade-offs and hard-nosed policy decisions. The argument is that countries can access untapped labor markets to mitigate the consequences of super aged societies, specifically:

1. Elderly, by combating ageism and supporting job mobility for aged 50+ workers
2. Youth, by reducing dropouts and improving school to work pipelines
3. Women, by closing gender gaps and boosting access to affordable child care
4. Migrants, by improving housing, public services, language and cultural assimilation, etc.

Let's go through each of these for Japan:

1. The average age of primary farmers is 68.4, and the average age of taxi drivers is 60.7. Almost half of of Japan's 64-69+ demo is still working. That places it in a handful of countries with extraordinary utilization of older labor. Not much headroom here.
2. Youth unemployment rates are already among the lowest in Japan v. rest of OECD.
3. Japan ranks extremely low globally on gender gap rankings. As in bottom 20%. Current and former representatives routinely say closing the gap will be a decades-long effort that needs to overcome deep-seated cultural barriers.
4. It's hard to see the floodgates on migration opening in the next few years given the new PM

With the election of Takaichi, I see one of the last routes on this list closed off. Which means technology might have to be the answer.

This report from the Carnegie foundation positions the country's super-aged society as an opportunity for technological innovation. The author mentions scaling remote healthcare platforms to deliver elderly and rural care, automated manufacturing to boost MFP, etc. Japan's outgoing PM briefly echoed the same sentiment in a speech earlier this year, and while the new PM has yet to confirm direction, it's hard to imagine what other roads the country can take given all 4 facets of the OECD's recommendation face strong headwinds in Japan.

The OECD explicitly cautions against seeing AI as a silver bullet or viable substitute for demographic challenges, but rather as a necessary and vital supporting element. In the case of Japan though, they seem backed into technology as a must-win bet.

The major things to track to see who's right on this are the usual candidates: MFP, GDP per capita, real wages, quality of life surveys, etc. All these metrics have been under pressure for decades in Japan, so I'm sure the next super-aged societies in line like China, Italy, Korea, etc. are watching intently to see if their bet on technology can reverse or at least flatten the trend. If Japan can pull this off, it could be another nail in the coffin for migration.