Japan is the world’s oldest country—25 percent of its people are aged 65 or over. By 2040, that ratio is estimated to rise to the historically unprecedented level of 36 percent. The population of Japan nearly tripled in the 20th century, peaking at 128 million in 2010. But with a falling birth rate, one of the world’s longest life expectancies, and close to zero net immigration, the country is headed for not only a uniquely high ratio of seniors but also a sharp downturn in its total population (Exhibit 1). All that will put increasing strains on Japan’s ability to manage its rising debt and social-security obligations and will create growing shortages of skills…
The labor-market gap
Most forecasts suggest that Japan’s economy will continue to grow at roughly 1 percent a year, and the Organisation for Economic Co-operation and Development (OECD) estimates that this rate of growth will extend until 2040. Without dramatic change, primarily in service-sector productivity, this seems quite optimistic to us. If labor productivity (measured as GDP per capita) continues to increase at only 1.2 percent a year, that sort of economic expansion will require a working population of 62 million in 2040. We, on the other hand, estimate that if labor-market dynamics remain unchanged, in that year the working population will have shrunk to 49 million—21 percent lower than what’s needed.
Japan could fill the gap by increasing the overall working population, accelerating the improvement in labor productivity, or a combination of the two. One path would be to raise female labor-force participation in the 25–44 age range to about 80 percent by 2040, from 71 percent now—narrowing the gap with the United States and Germany and bringing two million additional women into the workforce. As our colleagues at the McKinsey Global Institute point out, further increases in productivity across sectors would still be needed to meet Japan’s overall GDP-growth expectations.
Chosen excerpts by Job Market Monitor. Read the whole story at Japan: Lessons from a hyperaging society | McKinsey & Company.