The document discusses the implications of labor shortages in Japan, highlighting that a declining working-age population may hinder potential growth and business productivity. It presents statistical projections and emphasizes the need for strategies to increase labor supply, such as investing in technology, raising wages, and attracting under-represented demographics. Furthermore, it suggests regulatory changes to facilitate the hiring of foreign workers and improve labor market conditions.

1. Giovanni Ganelli, Naoko Miake
IMF RegionalOffice for Asia and the Pacific
Tokyo, November 13, 2015

2.  Why does labor shortage matter?
 Declining working-age population will bring down
medium term potential growth
 If employers cannot find sufficient number and
quality of workers, the effectiveness in business
activities will be negatively affected
 Effectiveness of the monetary and fiscal stimulus
will be reduced
2

3. 56.5
54.3
59.6
59.3 60.1
40
45
50
55
60
65
70
75
80
0
10
20
30
40
50
60
70
80
90
2010 2020 2030
(percent)(million)
Labor force population (Scenario A, LHS)
Labor force population (Scenario B, LHS)
Labor force participation rate (Scenario A, RHS)
Labor force participation rate (Scenario B, RHS)
The Outlook for the Labor Force Population and the Labor Force Participation Rate
3
Source: Ministry of Health Labour andWelfare, Ministry of InternalAffairs and Communication, Cabinet Office
Note: ScenarioA (negative scenario) assumes real growth remains zero. Scenario B (positive scenario) assumes real average
growth rate will be at 2 percent.

4. 0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1985 1990 1995 2000 2005 2010
Nationwide Job-to-Applicant Ratio
2014
4
Source: Ministry of Health Labour andWelfare

5. -20
-10
0
10
20
30
40
'07Feb '09Feb '11Feb '13Feb '15Feb
Fulltime Part time
Shortage
Excess
Employment Condition by Type of Employment
(diffusionindex, “shortage” minus“excess”)
Source:Ministry of Health Labor and Welfare “Labour Economy Survey”
-60
-50
-40
-30
-20
-10
0
10
20
30
40
1985 1987 1990 1992 1995 1997 2000 2002 2005 2007 2010 2012 2015
Allindustries
Manufacturing
Nonmanufacturing
Employment Condition by Industry
(D.I.; enterpriseof all size)
5
Excess
Shortage
Source: Bank of Japan

6. 0.0
1.0
2.0
3.0
4.0
5.0
Job-to-Applicant Ratio by Occupation
2013 2014
Source: Ministry of Health, Labour andWelfare
6

7. 0
10
20
30
40
50
60
70
80
90
2006 2007 2008 2009 2010 2011 2012 2013 2014
Japan
Hong Kong
USA
Germany
China
Italy
UK
Spain
Singapore
India
Source: Manpower.
Percentage of Firms Having Difficulties Filling Jobs (2006-14)
7

8.  Move towards more capital intensive technologies
by increasing investment
 Increase wages
 Attract more workers in the labor force from
certain under-represented demographic groups
 Train workers and using active labor market
policies
 Increase the supply of foreign labor
8

9. FEMALE LABOR PARTICIPATION RATE
AMONG SELECTED ADVANCED COUNTRIES
(WORKING AGE POPULATION, IN JAPAN ABOVE 14, AND IN US AND IN UK
ABOVE 15)
PERCENTAGE OF FEMALE EMPLOYMENT
BY EMPLOYMENT FORMAT (2007)
30.7
89.7
49.5
62.1
48.4
37.8
51.4
0
10
20
30
40
50
60
70
80
90
100
Source: Bank of Japan, JIL
9

10. 0.3 1.3 2.2 2.7 3.9 4.8 5.4 5.6 6.6 7.8 7.9
9.6
8.2 9.4 9.5
13.4
21.8
66.7
0
10
20
30
40
50
60
70
Japan
Hungary
Korea
Finland
Netherlands
Denmark
CzechRepublic
France
Italy
UnitedKingdom
Greece
Norway
Spain
Germany
Belgium
Austria
Switzerland
Luxembourg
Stocks of Foreign Labor Force
(percent of labor force; 2008)
Source: OECD “International Migration Outlook 2010”
10

11.  The requirements for highly skilled foreign
professionals to work in Japan (e.g. in terms
of salary level and research achievements)
have been relaxed (in December 2013)
 New type of residence status with unlimited
period of stay has been created for such
professionals (in June 2014)
 Labor deregulation in Special Economic
Zones (e.g. maids and long-term care
workers)
11

12.  Change the admission policies for foreign workers
 introduce guest worker program and qualification
assessment framework
 lower the minimum income thresholds for specialists
 Implement employment contract reform
 reduce labor market duality through providing new
employment contract type that balances job security and
job flexibility
 Abolish tax and social security disincentives that
discourage female and elderly labor force participation
 abolish tax deduction for housewives
 raise pensionable age
12

13. Temple University
November 13, 2015