Kobe City (©Sankei by Shigetaka Doi)
Japan's population is declining, and productivity is not rising. In 2024, Japan's GDP reached ¥609.3 trillion JPY ($3.9 trillion USD), reflecting year-on-year growth of 2.9% in nominal terms and just 0.8% in real terms, highlighting the country's persistently low growth trajectory. Measured in dollar terms, Japan fell behind Germany in international rankings, dropping to fourth place globally.
Japan's real GDP decreased by 0.2% in the January–March 2025 quarter, corresponding to an annualized rate of -0.7%. Weak consumer spending drove the negative growth, as rising prices continued to outpace wage increases.
Some observers believe that India will surpass Japan in the current fiscal year. India’s economy is growing rapidly and domestic consumption is continuing to rise. The variables that will boost the economy are population growth and productivity growth.
The Productivity Imperative
In 2024, Japan's population continued to decline with 680,000 births and 1.61 million deaths, both at record levels to date. The working age population (15-64 years old) was 73.74 million, a decrease of 210,000 from the previous year. Compared to Japan's peak working age population of 87.16 million in 1995, this was a 15% decrease.
The Ministry of Internal Affairs and Communications projects that the working age population will decline to 45 million by 2065. According to economic theory, if the population does not increase, then the productivity of each individual must rise. Economic strength will not increase otherwise.
Nevertheless, the number of workers in 2024 increased by 340,000 from the previous year, reaching a record 67.81 million. This figure includes all employed individuals, regardless of age, and reflects a rise in the number of elderly and female workers. To increase productivity, it is essential to have motivated individuals, regardless of age or gender, perform a reasonable amount of work and achieve good results.
However, the current Japanese labor market lacks a mechanism to provide suitable jobs for the elderly and women. As a result, it fails to harness their full potential to achieve high productivity and contribute to economic growth.
Collapse of the Employment System
Lifetime employment and the seniority system, once the core driving forces of the Japanese economy, are showing signs of coming to an end. Even top Japanese companies such as Panasonic and Nissan have announced job cuts. In the past, employees at Japanese companies were typically motivated by a strong sense of loyalty to the company. They were willing to work hard, even if their salaries were low at first, because they knew that hard work would lead to raises and promotions.
According to the Ministry of Health, Labor, and Welfare, the average monthly total cash salary in 2024 was positive for the fourth consecutive year. However, the average per capita real wage decreased by 0.3% from the previous year. This marked the third consecutive year of decline. There is no telling when, or even if, layoffs will take place. At the same time, real wages are not rising. Given these conditions, it's not surprising that the spirit of company loyalty, once so strong in Japanese firms, is becoming increasingly rare.
In fact, Gallup's annual Employee Engagement score, which indicates "how enthusiastic employees are about their work," shows that the level of employee enthusiasm at Japanese companies is very low compared to other countries.
New employees were taught to value company loyalty during their onboarding and often stayed with the company for their entire careers.
Recently, however, the turnover rate among new college graduates within three years has been rising, with 34.9% of those graduating in March 2021 leaving within this timeframe. Moreover, the companies that handle the resignations on their behalf are said to be thriving. The number of "deemed retirees," employees who stop working diligently, often for the sake of a pay raise or promotion, and simply follow orders, is also increasing in Japanese companies.
Dependence on Foreign Workers
To supplement the declining Japanese labor force, the Japanese government appears to be planning to bring in labor from abroad. In 1993, the Technical Intern Training System was launched. It aimed to transfer Japanese skills, technology, and knowledge to developing countries and cooperate in the development of human resources who would play a key role in economic development.
This system will be abolished by 2030, and a Training and Employment System will be introduced to replace it by 2027. These two systems will coexist from 2027 to 2030.
The Cabinet meeting held in March decided on a policy for accepting foreign nationals into the labor force in fields such as nursing care, construction, and agriculture. In principle, the plan is to train them to the specified skill level within three years. Essentially, the policy aims to address Japan's labor shortage by attracting foreign personnel to industries that are typically avoided by the Japanese due to the decline in the working age population.
However, numerous incidents have occurred under the Technical Intern Training System. It was implemented without adequate acceptance systems in place, including legal, logistical, and those related to living conditions.
Because of these issues, even if the new system is launched as is, it will take considerable time before overseas workers can effectively replace the declining number of Japanese workers.
Education Is the Key
To revive Japan's economy, which is currently experiencing a steady decline in the number of people in the productive labor force, it is necessary to improve the quality of each individual's labor. It is impossible to accomplish this in a short period.
In order to achieve this, it is necessary to enhance education from a long term perspective. Companies no longer have the capacity to enhance the in-house education that once instilled a spirit of company loyalty in their employees. Therefore, it is the universities that must provide sufficient education to young people before they enter the workforce, thereby supplying society with a high-quality labor force.
However, many universities remain old-fashioned in that students study hard until they enter, and once they enter, they can graduate without much study or effort. In fact, the number of college students is decreasing, so now is the time to provide each student with a quality education.
Internationalization or Imbalance?
Some universities are increasing the number of international students, especially Chinese students. According to the 2024 Survey of International Student Enrollment, the number of Chinese students was 123,485 (year-over-year +6.9 %). Students who could not gain admission to top Chinese universities, those who find it too difficult to study in the United States, and scholarship-seeking students are increasingly coming to Japanese universities, which are less expensive and have easier admission requirements.
If the increase in the number of foreign students from all over the world were to promote internationalization, this would be understandable. However, if most of the current students are foreign students, and all of them are Chinese, it is difficult to understand who the internationalization is for. It is hard to believe that they are improving the quality of Japanese students.
A System Misaligned
Companies hope that every employee will be motivated to increase productivity and contribute to improved business performance. However, many companies hire new employees on a temporary basis and outsource most of the training. This results in inadequate in-house training.
Universities, on the other hand, are expected to produce human resources who are nearly ready to enter the workforce. However, they have not been able to do so. Universities need to introduce practical classes for students, be strict enough to prevent students from graduating if they have not reached a level where they can be put into the workforce, and prohibit companies from approaching students for employment from an early stage.
We need to encourage Japanese university students to study harder and raise their standards to a level where they will not be embarrassed to be part of society. The issue of human resource education is one that will improve the quality of Japan's labor force, not to mention the quality of Japan's economy and industry. Universities, businesses, and the government, which is creating the blueprint for Japan's future, must work together to tackle this issue as soon as possible.
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Author: Yoshifumi Fukuzawa
