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Japanese Economy Update

Can Immigration Save Japan?

  Senior Research Fellow


Belated discussion on foreign workers

Discussion on the measures to address the problems raised by declining population has focused on a number of core policies. One of the policies with the highest priority is to raise the employment rate of women. The fact that there many women who cannot work even though they wish to, is undoubtedly unfortunate for the individual. But it is also unfortunate for the society as well, being unable to fully realize its members’ capabilities. It is all but natural to deal with this problem in earnest.

However, it is also true that it is only a medium-term solution to the declining population problem. When women’s employment rate has risen enough so that the so called letter M-curve has vanished, the negative impact of the declining population has to be offset by other means. Of course, we can raise the employment rate of the aged, but even this will reach its limit in the medium-term.

Undoubtedly, the most fundamental resolution is to raise the birth rate while raising the employment rate of women. Child-care facilities needs to be increased, network to support child raising at the community level has to be established, and working arrangement should be reformed so that work and family life can be more balanced. Raising child benefit also requires immediate attention. However, it should be noted that, even if we succeed in raising the birth rate tomorrow, we have to wait for twenty years to enjoy its impact on economic growth.

That leaves receiving more foreign workers as an option. The negative impact coming from declining population can be offset by increasing the number of foreign workers. It seems to be a natural and plausible option for people from other countries. When I made a keynote speech in a seminar hosted by a major think-tank in Washington D.C. recently, one of the questions from the floor was the following: “Why doesn’t Japan accept more immigrants when Japan itself has sent many as immigrants to South American countries?” The discussion on whether to accept more foreign workers or not, however, has not been enough in this country.

Consensus on the highly skilled

Among the policies on foreign workers, there seems to be a consensus in moving toward more open regime in receiving highly skilled foreign professionals. In areas where creativity is critical, it is essential for people with different social and cultural background to encounter so that new ideas are created and innovation are stimulated. Abenomics is aware of its importance. The Japan Revitalization Strategy (or Japan is Back document) announced in June 2013 has initiated a revision of the existing point-based preferential immigration treatment for highly skilled foreign professionals from this perspective.

No consensus on the unskilled – points at issue

The problem is with unskilled workers.

There are certainly merits in receiving more unskilled workers. Even if he is unskilled, if the worker engages in domestic economic activity, he will produce additional value-added and contribute to economic growth (of course, if the worker sends a part of his wage to his home country, the contribution on the Japanese GNI may be different). In addition, as far as she pays taxes and social security premiums, she will be contributing in enhancing the sustainability of the fiscal and social security systems.

On the other hand, receiving unskilled workers imply that the endowment of production factors is going to change; the policy to increase the stock of unskilled workers will shift back the comparative advantage of the Japanese economy from capital-, knowledge, and technology intensive goods to labor-intensive ones. It will intensify the competition with the emerging and developing economies, and place the Japanese economy in a more difficult environment.

The problem with accepting unskilled workers, however, does not lie only in the economic issues as discussed above. There is a sense of rejection from different perspectives.

First, there is a possibility that employment of Japanese workers is at stake. It is a concern that is common to many other countries as well. Many advanced economies have introduced “labor market testing” which requires that the foreign worker will not endanger employment of the domestic workers.

However, the risk of endangering domestic workers should exist for the highly skilled professional as well. Moreover, since declining population implies, in general, shortage of labor, there should be increasingly less competition for work. Furthermore, if domestic workers can engage in more high-value added activity as a result of accepting more unskilled foreign workers, it is possible to expect a positive economic impact.

Second, there is a possibility of increased friction between foreigners and the Japanese resulting, in some cases, in more crimes. It is also pointed out that local governments have to increase spending on housing and education for foreign workers and their families.

However, if you are to decide not to receive more foreign workers because of the possibility of increased frictions and crimes, you also have to give up the positive impact on the economy that you may enjoy because of receiving them. It seems sensible to separate the problem, and to allocate domestic policies in dealing with the negative impacts, while receiving more foreign workers and enjoy its positive merits.

As for the increased spending by the local governments, it may be important to compare the situation where you receive more foreign workers with the situation where you don’t. You may be enjoying more tax revenues and social security premium payment if you accept foreign workers, while you may have to endure a stagnant regional economy, if not a shrinking one, if you don’t.

Shaping the future could be left to future generation

When you are to decide whether to accept foreign workers or not, you have to take into account the merits and demerits that we have discussed above. However, we may not have enough time left for discussing the issue. Neighboring countries, such as Korea, has reformed its immigration policy and has become open in receiving foreign workers. Since the implementation of Foreign Worker Employment Law in 2003, Korea has introduced legislations to prepare for coexistence with foreigners, and to support children of international couples.

Therefore, if we reach a decision to accept more foreign workers after spending a long period of time discussing the issue, there is no assurance that foreign workers will actually come to Japan. There is a possibility that Korea and other countries are much more attractive than Japan. It may only be a misperception to believe that once we open the country foreign workers will rush to our country.

We are, in this sense, being confronted with a choice between becoming a former economic power inhibited by mostly aged people, and becoming an active economic power where Japanese and foreigner live and work as partners.

It is a tough decision to make: It is tough because it is a decision that will shape the future of the country. But if that is the case, we may as well leave the decision to those who are going to actually carry on their shoulders the future of the country – the young. If the young are left to decide, they may come up with an answer which is different from the one that may be reached when the decision is left to the aged to decide. It may be a good idea to ask the young to make the wise decision.