The problem of declining population growth has been haunting Japan, Asia’s only advanced industrialised economy, and it seems to be reaching a critical stage. The problem is being felt in the medium and small industry sector, which provide 7 out of 10 jobs in the country.
There will be a shortage of 3.4 million workers in the country, and it will grow to 11 million by 2040. For the last 30 years, Japan has been a stagnant economy, and they have been traced to many causes, especially the monopoly tendencies of the major firms acting in consonance with the Ministry of Trade and Industry. The economy had plateaued and further growth looks impossible.
Labour shortage adds to the economic crisis. For many decades now, and due to objections from international trading partners, Japanese companies had to set up manufacturing units in other countries. And it might see that offshoring manufacturing could be one of the responses to labour shortage. But this is not a solution because the Japanese manufacturers who had set up shop abroad are the large manufacturers with assembly line production.
But the heart of the Japanese economy lies in the medium and small industrial units, which employ small number of people. Even these smaller manufacturing units have gone in for some automation. But it does not solve the problem because these units more hands to run the machines to increase production.
This is the dilemma of small town Ino’s Masato Shiota, who is into making tissues, disinfectant swipes and toilet paper. He says, “We have three machines but only have two running on any day. If we don’t have the people, we can’t make the products and we can’t turn a profit. We’ll go under. This is the biggest problem for small and medium-sized companies.”
According to data, 182 companies went into bankruptcy in the first half of 2024 because of labour shortage, a 66 per cent increase over last year. The overall number of bankruptcies are set to cross 10,000 this year, the highest since 2013.
The small and medium sector units which provide the largest employment are losing out, and this will have ripple effects on the national economy. Japanese economy has been struggling to pull itself out of stagnation. The attempts have failed even when the interest rates were pushed down to zero, and even below zero. It is only recently the interest rates moved into positive territory and there was a round of cheer when the Bank of Japan raised the interest rate for the first time in 17 years. An official speaking on condition of anonymity told Reuters news agency that bankruptcies are inevitable, and this will help owners and workers in businesses to move from unproductive areas into ones that have greater demand. The workers will also get better wages when they move on to other jobs. And comparatively, bankruptcies in Japan are lower than in many other economies. It is a logic that is both simple and attractive.
But the argument skirts the real issue facing the smaller manufacturing units. In any other economy, the labour shortage would have been met through migration. But Japan has avoided migration for social and historical reasons rather economic ones.
The only concession they have made in recent times is to allow guest workers from Vietnam. But that is a short-term solution. And many of the small and medium manufacturing units such as Shioto’s paper manufacture business in Ito require training in traditional methods. So they are forced to abandon the specialised and traditional paper-making processes. So, they end up making products of mass demand like toilet paper. It is said that even school-leaving youngsters are recruited directly and given higher wages, they need to be trained. And that is not an easy task.