An Economy and Society That Responds to the
Challenges of a Declining Population

October 14, 2008

Nippon Keidanren
( Japan Business Federation )

<< Executive Summary >>

On October 14, 2008, Nippon Keidanren announced its policy proposal "An Economy and Society That Responds to the Challenges of a Declining Population."

Based on a time horizon of 50 years or so, this proposal brings together measures that Japan should begin implementing immediately so that citizens can maintain vigorous and prosperous lives despite the advent of serious population declines. In developing this proposal, field surveys were undertaken in four European nations, including Germany and the United Kingdom, and with respect to the European Union.

Japan's total population is expected to contract by 30 percent in the next 50 years, and the working-age population will shrink to about one-half its current size. As a consequence, it will be necessary for just 1.3 persons of working age to support one person who is 65 years or older. Such a rapid population decline will slow the economic growth rate, make it difficult to sustain government finances and the public pension system, and also make it hard to maintain an economic and social system requiring manpower in such areas as health care and long-term care. Based on certain assumptions, a shortage of about 1.8 million workers is estimated for the health care and long-term care fields.

As the population decrease becomes more acute, the acceptance of foreign workers and the promotion of their permanent residency should be considered seriously if Japan is to strengthen its competitiveness and stably maintain the functions of its economic and social system. With global competition increasing over labor, it will be essential to (1) actively accept highly skilled labor, (2) expand the acceptance of foreign students and promote their employment, and (3) accept foreign workers with a certain level of qualifications or skills.

To achieve these ends, an urgent issue is to consider seriously comprehensive Japanese own immigration policies, such as the enactment of legislation and the development of administrative systems, including the establishment of a responsible minister.

Moreover, with the view of maintaining a vigorous economy and society over the long term, measures that should be implemented immediately are:

Strengthening of growth capacity, such as through the promotion of research and development and through human resources development
Fostering of future generations, such as through the promotion of bold measures that address the challenges of a declining birth rate

<< Outline of the Proposal >>

With the advent of a society with a declining population, Japanese citizens feel more uncertainties toward the future with regard to the waning of economic vitality and the diminishing prospects for maintaining the social insurance system, among other issues. Nippon Keidanren therefore proposes measures based on a time horizon of 50 or so years that Japan should begin implementing immediately, with the view of maintaining economic vitality in the long term and of enabling citizens to realize prosperous lives.

1. The Effect of a Declining Population on the Economy and Society, and the Need for Suitable Responses

a) In the next 50 years, Japan's total population will decrease from 127.77 million (2005) to 89.93 million (a decline of 30 percent), and the working-age population will contract sharply from 84.42 million (2005) to 45.95 million (a decline of 46 percent). This means that 50 years hence just 1.3 working-age persons will be supporting one elderly person (Chart 1). Furthermore, the distribution of the population by region will grow more uneven.

Also, the percentage share of foreigners in Japan's total population is even low compared to European and other developed countries (Chart 2). Moreover, Japan has been falling far behind in the international competition over securing highly skilled labor.
b) Given these circumstances, it should be difficult to keep economic growth, the sustainability of government finances and the public pension(Chart 3), and the economic and social system requiring manpower in such areas as health care and long-term care.
c) The effects of a declining population will grow more serious as time goes by. Also, should the younger generation lose hope in the future, the population will flow overseas in the context of globalization, led by highly skilled workers, which will risk accelerating the population decline.
d) To overcome these problems associated with a decreasing population, it will be essential to clarify a path toward new growth and to promptly begin implementing measures with immediate effect together with measures requiring a relatively longer time span.

2. Policies for Maintaining the Vitality of the Economy and Society in the Long Term

a) Strengthening the Capacity for Growth
Build a powerful economy that can continue growing despite a contracting labor force.
1. (1) Promotion of research and development activities (expansion of R&D tax break, steady implementation of the 3rd Science and Technology Basic Plan, etc.)
2. (2) Fostering or inviting scientists who support innovation
3. (3) Promoting economic partnership agreements (EPAs) and free trade agreements (FTAs)
4. (4) Revitalizing local communities and reorganizing the current local governments (switch-over to "doshu-sei", a kind of Federation)
b) Fostering of the Next Generation
1. (1) Serious efforts to develop measures that address the challenges of a declining birth rate
  - Expansion of childcare services of local communities
  - Childcare tax breaks and the securing of stable revenues through comprehensive tax reform(cf. "Proposal for Comprehensive Reform of Taxation, Fiscal Policy, and Social Security Programs(Oct.2, 2008) "
  - Promotion of work-life balance and varied and flexible ways of working
2. (2) Education reform
  - Restoration of the functions of primary and secondary education
c) Maximum Use of the Domestic Labor Force and Acceptance of Foreigners with Abilities
1. (1) Promotion of the social advance of women, etc.
  - Development of an environment that encourages the ongoing employment and reemployment of women
  - Promotion of the employment of young people as well as motivated and capable elder people
2. (2) Global competition over labor force and consideration of Japanese own immigration policies
  - To promote the active acceptance of foreign workers that assumes their permanent residency, there is an urgent need to consider seriously comprehensive Japanese own immigration policies, including the enactment of legislation and the development of administrative systems, such as the establishment of a responsible minister.
  - Deregulation and Policy Reforms for Active Acceptance for:
    1. (a) highly skilled labor
    2. (b) foreign students and promotion of their employment in Japan
    3. (c) foreign workers with a certain level of qualifications or skills
      (flexible acceptance beyond the frameworks of EPAs, revision of the Industrial Training and Technical Internship Program, etc.)
3. (3) Promoting the retention of foreign workers in Japan
  The role of social integration policies will be important in building an environment where Japanese and foreigners can understand each other's cultures and customs, and live without difficulties in local communities.
  - Active responses by local communities, government, and companies (strengthened Japanese language education, improvement and application of the social insurance, development of the employment environment, a secure legal standing, improvement of social services, prevention of illegal residency, etc.)
  - Extent of the acceptance of foreign workers in the long term
    A government agency estimates that the number of foreigners in Japan will be 3.6 million over the next 50 years. At that time, workers in the field of health care and long-term care will be short by 1.8 million under certain assumptions.
  - Early start of discussion for forming a national consensus

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