Economics and finance, Government and governance, Trade and industry, Law | Asia, East Asia

30 January 2019

With the world’s third largest economy suffering from labour shortages, Abenomics needs to hit its target, Andrew Thomson writes.

Since the end of World War II, small-scale family farms have dominated Japan’s agriculture industry. But now the sector is facing a labour shortage as Japanese society continues to age and farmers retire in increasing numbers. While agricultural producers have attempted to resolve the shortage by recruiting women and pensioners, it has become apparent that only a large influx of foreign workers will fill the gap.

It’s for this reason that Japanese Prime Minister Shinzo Abe fired the third arrow of Abenomics last month: structural reform. The bundle of 126 measures comes in the wake of the passage of a divisive foreign worker bill on 8 December 2018.

The bill aims to recruit 345,000 foreign workers over the next five years and will take effect in April 2019. This bill and its accompanying measures to attract overseas talent are perhaps the most significant structural reform implemented by Abe since he took office in late 2012.

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The third arrow of Abenomics, structural reforms, has been mostly left unused over Abe’s term of office. Instead, the Japanese government has relied on the first and second arrows – expansionary fiscal and monetary policies—to stimulate the economy after decades of stagnation. While these policies have spurred modest economic growth, they have not resolved the underlying issues.

The crucial problem is Japan’s rapidly ageing population and shrinking labour force.

Although Japan’s unemployment rate is at its lowest point since the early 1990s, 14 key industries including construction, hospitality, and nursing care are facing severe labour shortages. This problem will only get worse as the population is forecast to shrink by almost a third over the next 50 years.

Meanwhile, the percentage of seniors is expected to rise from 28.1 per cent to 38 per cent over the same period, meaning the shrinking labour force will have to support an increasing number of dependents. This demographic bomb will be a drag on the national economy for generations to come.

Continued labour shortages in the face of attempts to increase birth rates and promote the inclusion of women and senior citizens left Abe with just two options. The first was to increase productivity. The second was to drastically increase numbers of foreign workers. After Abe was forced to abandon labour law reforms in March 2018, the latter became the only viable alternative.

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This is apparent in the successful passage of the new foreign worker bill in spite of widespread opposition. Apart from addressing labour shortages, foreign workers will also revitalise the economy by starting businesses and helping Japanese companies enter overseas markets.

In response to criticisms that the new bill does little to prevent the exploitation of foreign workers, the Japanese government introduced 126 measures to support foreign workers and integrate them into society. The majority of these measures promote coexistence between local Japanese and new arrivals.

One such measure includes Japanese language schools and multicultural consultation centres in each prefecture. Another is regional revitalisation subsidies to incentivise communities to fully accommodate foreign workers. Most significantly, the Japanese government is set to establish agreements with eight Asian countries, which will help law enforcement prosecute brokers and companies that exploit foreign workers.

However, for these reforms to succeed, Japan must become an attractive place for foreigners to work and live. Japan currently ranks 29th out of 63 countries in its ability to attract foreign talent, lagging behind other Asia-Pacific countries such as Singapore, Hong Kong and Malaysia.

On the face of it, Japan’s higher living standards and salaries give it an advantage over other Asian countries.

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But it is difficult to find employment without fluency in Japanese and visa restrictions prevent blue-collar workers from bringing their families with them. As a result, it is unlikely that the foreign worker bill will result in a substantial increase in the number of long-term permanent residents needed to resolve Japan’s labour shortages.

After six years in power, Prime Minister Shinzo Abe has for the most part been unsuccessful at structural reform to solve the problems of Japan’s ageing society and shrinking workforce. While the passage of the foreign worker bill may not be the silver bullet for Japan’s labour shortages, it does represent an admission from Japanese government that foreign workers are necessary and needed. This break with conventional thinking may help set in motion other much-needed structural reforms.

The third arrow has been fired. Now all we can do is hope it hits the bullseye.

This piece is published in partnership with The Monsoon Project – the student-run academic blog at The Australian National University looking at issues affecting Australia, Asia, and the Pacific.

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