Japan Labour Shortage: Aging Population Challenges Businesses
As Japan’s population continues to age and shrink, the nation faces an acute labour shortage, creating ripple effects across its economy. A recent Reuters survey conducted by Nikkei Research sheds light on the crisis, with 66% of Japanese companies reporting that labour shortfalls are seriously or fairly seriously impacting their operations.
Labour Shortage Hits Small Firms Hard
The survey reveals that small firms and non-manufacturers are particularly affected, struggling to maintain operations amid workforce gaps. The consequences are stark: bankruptcies linked to labour shortages jumped 32% in 2024, reaching a record 342 cases, according to Teikoku Databank.
A manager at a railroad company emphasized the gravity of the situation, stating, “It goes without saying this drives up personnel costs, but it could even pose a business continuity risk.”
Efforts to Combat the Labour Crisis
To address the shortfall, 69% of companies are intensifying recruitment for new graduates, while 59% are extending retirement ages or re-hiring retired employees. Although the official retirement age is 60 for two-thirds of companies, most now allow employees to work until 65.
Despite these efforts, nearly a third of survey respondents said the labour shortage is worsening, with only 4% seeing improvement.
Japan Labour Shortage: Rising Costs and Business Adjustments
Labour shortages are also driving wage increases, a necessary step to retain employees. The pressure of higher wages, combined with a weak yen and rising import costs, has led 44% of companies to plan price hikes this year.
A manager at a metals company remarked, “We just cannot help but raise prices because of an across-the-board increase in wages and other fixed costs, in transportation costs and in costs of raw materials.”
Tokyo’s core consumer price index rose by 2.4% in December 2024, accelerating market expectations for an interest rate hike.
Aligning with Government Policy
Investment priorities for 2025 show a focus on capital investment (69%) and wage increases (63%), echoing the government’s strategy to spur economic growth through higher wages and investments.
Conclusion
Japan’s aging population has created a labour shortage that is reshaping its economic landscape. Companies are adapting with higher wages, recruitment drives, and retirement age extensions, but these measures come at a cost. As businesses raise prices to stay afloat, the nation faces the dual challenge of balancing economic growth with workforce sustainability.
Will Japan’s strategies for addressing its labour crisis prove effective, or will the nation need further reforms to navigate this demographic challenge?
