The government’s latest estimate that Japan could lose 20 percent of its workforce by 2040 due to the aging and declining population once again underlines the need for efforts to bring more women and the elderly into the labor market to sustain our economy. It also reminds us that we must explore ways to boost the nation’s output that don’t depend on manpower.

According to the estimate released by a study group at the Health, Labor and Welfare Ministry, the workforce will fall from 65.3 million in 2017 to 60.82 million in 2025 and 52.45 million in 2040, based on a scenario there will be zero economic growth and no progress in labor participation by women and the elderly.

The forecast does not take into account the impact of the amended immigration control law that, beginning this April, opens the door wider to foreign workers to make up for the domestic manpower shortage. The government expects to accept up to 345,000 workers from overseas in the first five years. However, the magnitude of the anticipated workforce decline — up to 12.85 million from 2017 to 2040 — looks too large to be covered by just bringing in laborers from abroad.

It is the first time that the labor ministry study group, which releases workforce estimates every two to three years, has issued an estimate going forward to 2040 — around which time the number of elderly people 65 or older is projected to peak.

An estimate by the same group based on another scenario, in which the economy will grow and efforts to promote more women and seniors to join the labor market pay off, shows that the workforce decline can be slowed — to 63.43 million in 2025 and 56.44 million in 2040. But that would still represent a steep fall.

Even in this scenario, people in the 15-60 age bracket with jobs in 2040 will be roughly 20 percent fewer than in 2017, while elderly workers will account for an increasing portion of the workforce, creating a labor market picture that the nation has yet to experience.

In fact, the workforce hit a record 66.98 million in May last year — topping the previous high in 1997 — as businesses hired more women and seniors to make up for the continuing decline in the primary working-age population of 15 to 64. While the total workforce rose by 1.5 million from a year earlier, the number of women participants increased by 930,000. Elderly workers (65 or older) rose by 560,000 from the previous year to 8.75 million, an increase of 3.7 million from 1997.

The government has been exploring measures to get elderly citizens to stay longer in the labor market. It is reportedly thinking about extending the age through which companies will be required to provide some form of employment for their workers past the mandatory retirement age — still 60 among most Japanese firms and organizations — from the current 65 to 70.

Japan’s labor participation rate among senior citizens is already higher than in many other industrialized economies. People 65 or older account for 13 percent of the total workforce. Most of the employed elderly workers, however, are either rehired at sharply reduced wages after they’ve reached retirement age or are doing low-paying part-time work. Lawsuits have been filed by some workers who argue that their reduced wages, even though they essentially engage in the same work as before their mandatory retirement, runs counter to the “equal work, equal pay” principle. In a policy recommendation released last month, the OECD urged Japan to phase out the mandatory retirement system and prepare new measures to adequately reward senior workers for their job skills and productivity.

Meanwhile, labor market participation by women in the primary working age hit 70 percent for the first time last year, with the female workforce reaching nearly 30 million. However, a large part of the increase has come in irregular jobs such as part-time or term-contract work — although the number of women landing jobs as regular employees is also growing.

The wage gap between male and females remains steep both in regular and irregular jobs. The gap is partly attributed to the small number of women in management positions, an area in which Japan lags far behind many other industrialized economies. Along with measures to narrow the gap, more policy steps are needed to help women of child-bearing age to find diverse and flexible ways to work, and to help them maintain a better balance in work and family life.

The latest grim estimate on the future of the nation with its aging and shrinking population should prompt us to once again identify the challenges that must be overcome to sustain our workforce and maintain the economy’s growth potential.

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