Women or Immigrants

Many are familiar with the term “lost decade”, that describes Japan’s stagnant economy in the 1990s, after the bursting of the asset price bubble. When the economy continued to stagnate also in the 2000s, the term was extended to “lost two decades”. And the way things are going, it looks like we will soon be talking about the “lost three decades”.

During this time Japan’s economy shrunk, real wages fell and inflation rose by minuscule amounts. The governments tried to jump start the economy in various ways, with the current one led by Shinzo Abe adopting the farthest reaching policies to date (dubbed “Abenomics”). Most recently, the Bank of Japan drove certain interest rates into negative territory, in what seemed like a desperate measure to make Japanese banks and consumers spend more and thus breathe some life into the ongoing sluggishness. Expectations worldwide are that the world’s third largest economy should start growing at a befitting “Western growth rate” of, say, 1-2% annually.

Yet everybody seems to be ignoring, or at least downplaying, the single most crucial reason for this dismal state of affairs: Japan’s declining population. Since 2010, the local population has been declining by about 200,000 a year. In 2014 there were 127.13 million Japanese, the same as back in 2001. With an outlook of continuing declining demographics it is actually a wonder the economy is growing at all.

There are two ways Japan can mitigate the impact declining demographics on its workforce: women or immigrants (or both).

Women are notoriously absent from Japan’s workforce, certainly in the full-time, higher-paid parts of this workforce. I always give an example from my personal experience: in 20 years of working in Japan and countless business meetings, only once did a woman holding a senior position sit across from me at the table. The common expectation here, even among young people, is that women should stop working after having a baby. Combine that with a male-dominated business culture, and you get a negative incentive for women to participate fully in the workforce.

As for immigration. In this country more than 98% of the population is Japanese. Work permits for foreigners are selectively doled out. Even foreigners who have been living here for decades, and are married to Japanese, do not get a full citizenship but only “permanent residency”. Japanese society is notorious for being insular and suspicious of foreigners, hardly a conducive environment for opening the job market to immigrants, as some European countries did in order to counter their declining demographics.

So I smile a wry smile when I read about the expectations for Japan’s economy to grow at a “Western rate”, and about the herculean efforts of Abe’s government to breathe some life into the stagnant economy by fiscal and monetary measures. Unless Japan starts taking the participation of women in the workforce seriously, and/or starts relaxing the work permits policy for foreign immigrants, it is time for everyone to start getting used to the term “lost three decades”.

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