Japan’s population fell by a record -264,000 in 2018 to 126.4m. Trends suggest that by 2050, Japan’s population will be less than 100m.
In 2015, 27% of Japan’s population was over 65. By 2050, that number is forecast to reach 38%.
Japan has never been keen on immigration, and ANZ Bank economists note there is little prospect of immigration being high on the government’s agenda.
The country’s current birth rate is 1.4, well below the “steady state” rate of 2.1 – enough to maintain a stable population. This lack of replacement means each year the pool of young workers diminishes in relation to retirees, hence there are fewer drivers of the economy funding an increasing drag on the economy.
This implies declining productivity.
At the same time, Japan has long been a global leader in robotics. In 2018 Japan exported US$2bn worth of industrial robots, ANZ notes – more than the next five leading exporters (Germany, Italy, France, China, Denmark) combined. At home, Japan has one of the highest measures of “robot density” – the number of robots relative to humans in industry.
Productivity is measured as GDP per man-hour. Thus robots increase productivity.
Whether intentionally or not, Japan has already laid the foundation for a solution to its productivity problem. But as the statistics above suggest, more needs to be done.
Brave New World
Hence the Abe government has unveiled an ambitious “Society 5.0” strategy. The strategy envisages the greater adoption of robotics, artificial intelligence, “Internet of Things” and big data to enhance long term productivity. Technology will help fill the void, ANZ notes, of a declining workforce and/or augment the existing workforce.
With other economies facing declining and ageing populations, ANZ believes Japan should provide a useful case study for The Future of Work.
The use of robotics in manufacturing arguably dates back centuries, if we consider any machine that does the work of humans more efficiently a “robot”. But like everything else, the field of robotics has accelerated exponentially in this century and the bulk of Japan’s investment in robotics has been in export-oriented manufacturing sectors, particularly automotive and electronics, where the robots outnumber the humans.
But while Japan is seen as an export economy, manufacturing only accounts for around a quarter of GDP, with services driving the other three quarters. There has been very little productivity growth in Japan’s services sector in recent decades, likely reflecting, ANZ suggests, the fragmented state of many service-based industries and the lack of competitive domestic pressure.
In this area, Japan has actually fallen behind. Productivity in Japan’s non-manufacturing sector is about 60% that of the US, ANZ notes. There is clearly room for improvement.
Thus Society 5.0 outlines several “ambitious”, ANZ suggests, objectives for service industry automation, including:
– self-checkout registers in retail outlets
– touch-screen menus in restaurants
– drones to deliver goods
– online medical care
– robot nurses
– self-drive vehicles
But at what cost?
What becomes of shop assistants, wait staff, delivery drivers, regional doctors, nurses and working drivers of any sort?
Quite clearly there will need to be an adjustment period. Workers in these traditional areas cannot simply switch into new-age vocations, leaving them vulnerable to redundancy, lost income and becoming the “have-nots” of a new society, increasing income inequality.
Yet technological advances boost productivity, and over time, ANZ notes, create new jobs, allowing living standards to rise. A 2017 Japanese study found increased robot density in manufacturing to be associated not only with greater productivity but also with local gains in employment and wages. The same should prove true for service sectors.
The Japanese government will nevertheless need to manage the transition very carefully, providing effective social safety nets for displaced workers and the disadvantaged, ANZ suggests. In addition, the government will need to be proactive in educating and re-skilling workers to ensure they too can be part of the new high-tech world.
An ageing population and the changing face of the workforce have long been issues for other governments, which have not moved much past acknowledging the future problem. Japan is unique as a developed nation. Aside from an ageing population, it has a declining population, forcing the government into action to future-proof the economy.
Japan’s experience could provide valuable lessons, ANZ believes, for economies such as China, South Korea and Europe facing similar demographic trends.
Australia does not have the problem of a declining population – quite the opposite – although living longer and having fewer children means the Australian population is still ageing. Increasing the pension age has been one solution. Meanwhile, coal mines are becoming increasingly automated.