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Japan's shrinking labor pool sharpens quest for productivity

Automation a growing priority as working-age population shrinks 14% in 25 years

Electronics retailer Nojima scrapped its age ceiling for employees in October.   © Reuters

TOKYO -- Japan's working-age population sank to just over 75 million last year, down 13.9% from the 1995 peak, underscoring an urgent need for productivity growth to keep the economy expanding as the labor pool dwindles.

The country had fewer people ages 15-64 last year than in 1975, according to twice-a-decade census data released Friday. This group made up less than 60% of the population for the first time since 1950, coming in at only 59.5%.

The growing demographic skew toward seniors casts a shadow over Japan's economic outlook for the coming years. Companies are turning to technology and other avenues to cope with a labor shortage poised to worsen.

The population decline was offset during the past decade by a rise in women and older people participating in the workforce, helped along by an economic recovery. Last year's labor force survey put the total number of employed people at 66.76 million, up 6% from a decade earlier.

Electronics retailer Nojima essentially scrapped its worker age limit of 80 last month, employing older staff on year-to-year contracts in a move that lets the company retain the accumulated expertise of veteran sales personnel. Zipper maker YKK Group has eliminated its retirement age of 65 for full-time employees.

But without improving productivity, employing more people from previously underutilized groups can do only so much to counter the broader decline in the working-age population.

Labor productivity rose slowly but steadily under former Prime Minister Shinzo Abe's economic program, growing 1.1% a year on average between 2012 and 2019.

However, Japan's gross domestic product per hour worked, at $48.14, is the lowest among the Group of Seven advanced economies, and less than the Organization for Economic Cooperation and Development average of about $54.

The government estimates that labor inputs -- changes in the number of workers employed or hours worked -- contributed little to growth in the 2010s. This factor provided an average annual boost of 0.7 percentage point in the 1980s.

Given the country's population trends, growth rooted in fundamentals will be nearly impossible without improving productivity through digital technology and advances such as artificial intelligence.

Other nations are embracing automation to transition away from work that relies on human employees. U.S. retailer Walmart is adding autonomous robots to distribution centers and using driverless trucks to transport products.

Red tape hinders similar moves in Japan.

The chronically short-staffed convenience store industry is pushing to allow the sale of alcohol and tobacco at unmanned shops, using technology that lets customer ages be checked remotely. There are also calls to rethink requirements for even small-scale construction projects to have managers on site.

Measures that encourage talent to move into productive fields are essential as well. Lifetime employment at a single company remains the norm in much of corporate Japan, encouraged by tax and other government policies.

The census data cast the graying of Japan's population into sharp relief. The number of people 65 and older climbed 6.6% from the previous survey to 36.03 million, making up 28.6% of the 126 million total -- the largest share to date. This group surpassed the 14-and-younger population in 2015, and the gap widened in 2020 to 3.57 million.

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