Article Summary
Japan is presently facing a shortage of both skilled and unskilled labor. The shortage has occurred from three primary reasons. One is the ageing population. Japan is facing a situation of falling demographic dividend as a higher percentage of the population is at the dependent age group of 65 years and above. The percentage of population in the workable age group of 16 to 65 years is lower in Japan. Secondly, strict immigration laws in Japan does not allow the gap between labor demand and supply be filled with foreign workers. Thirdly, there is a mismatch between the skill sets required by the firms and the skill sets possessed by the people.
Presently Japan’s unemployment rate is 3.4 per cent . This low rate of unemployment should indicate a good economic condition. But it is not so. The Gross Domestic Product (GDP) has in fact has fallen by 0.8 per cent in July-September, 2015. Falling consumer expenditure and investment are the major causes of the weakening of Japan’s Economy. The fall in the labor supply is adding to the woes. Many firms are reducing their scale of operation or even shutting down operations in some areas due to the lack of labor.
The government of Japan has introduced a heavy dose of fiscal and monetary stimulus package to boost growth. But the labor shortage has resulted in a muted response to the stimulus. The government has moved a step further to loosen the labor laws. The effect is yet to be seen. But the government is reluctant to allow any considerable increase in immigration. But immigration can be productive for the economy in a number of ways. First, it can solve the problem of labor shortage. Second, the adverse demographic structure can be corrected through immigration of population in the workable age group. Finally, with immigration of foreign workers, the consumer spending will get a boost. This will give impetus to growth.
The labor market situation in Japan is depicted in the figure below. The So and Do curves represent the initial supply and demand for labor respectively. The fall in labor supply is shown by a leftward shift in the supply curve from S0 to S1. The shift of supply curve leads to a fall in the equilibrium labor employment from Q0 to Q1and rise in the wages of labor from P0 to P1.
P1 S0
P0
D0
Q1 Q0 Q
Works Cited
Koutsoyiannis, A. Microeconomics. Macmillan Press Ltd., 2008.
Martin, Alexander. "lack of Worker's Hobbles Japan's Growth." The Wall Street Journal 15 November 2015. English.
