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November 16, 2015

Japan returns to recession amidst labor shortage

The Japanese economy has gone into a technical recession for the fourth time in five years, as the country faces a shortage of workers.

Official figures show that the economy shrank by 0.8% in the third quarter of 2015, following a similar decline in the second quarter.

Japan’s economics minister Akira Amari said that the government’s ability to boost the economy was limited due to a lack of workers available for public works projects, and called for employers to raise wages and increase investment.

Government data show that the job openings to job seekers ratio currently stands at 1.24 jobs per applicant, with particular shortages in the IT, manufacturing, trade, and health care sectors. Consequently, the country’s unemployment rate is currently at a long-term low of 3.4%.

The Wall Street Journal reports that the shortage of both skilled and unskilled workers in Japan is projected to cost the country of 2% of its GDP (around $86 billion) in 2015 and 2016.

Japan’s economic problems are exacerbated by an aging population coupled with very low levels of immigration, foreign labor accounting for just 1% of the total workforce. The government has made some tentative steps towards opening up to skilled foreign labor, aiming to double the number of foreign IT workers to 60,000 by 2020.

Abdurrahman Aydemir has written for IZA World of Labor about designing skill-based immigration policies. He writes that: “To maximize benefits, immigrant selection policies should be complemented by economic integration policies to ease the transfer of foreign human capital.”

Carol Graham has also written for us about how late-life work may offset some of the challenges of aging populations in developed economies. She writes that people who voluntarily work beyond traditional retirement ages “have higher levels of well-being (in some dimensions) than retirees. Higher levels of well-being are in turn associated with better health and greater productivity, suggesting that the benefits of such arrangements could extend beyond the individual to society.”

Read more on this story at the Guardian and the Wall Street Journal.

Related articles:
Skill-based immigration, economic integration, and economic performance by Abdurrahman B. Aydemir
Late-life work and well-being by Carol Graham