Economic costs of Japanese immigration policy

Imagine a well-developed country and one of the strongest economies with the strongest passport on the world1. A country which has one of the most serious problems related to the demography and at the same time one of the strictest immigration policy on the world[1]. The picture which you should have is a country called Japan.

Demographic issues together with a strict immigration policy results in a genuine economic concern. But to better understand the Japanese factor it is necessary to pay attention and describe several aspects that have a negative impact on the Japanese economy, and whose solutions (on the one hand) and negative causes (on the other) can be seen in immigration policies.

The first aspect – the low fertility problem combined with the aging society. Namely, “according to the World Health Organization, in 2018, the average life expectancy in Japan is 84.2 years old. Men live an average of 81.1 years, and women live an average of 87.1 years”[2]. This means that with a low birth rate (data collected by the World Bank say about the fertility rate for 2016 amounting to 1.44)[3], the percentage of older people in society will gradually increase until it reaches a very dangerous level.

Source:Own study based on: [access date:15.10.2018]

As can be seen in Chart No. 1, the share of people in the age of 65+ in the society will reach a level of almost 40%. Workforce will be automatically reduced, which could be prevented by the immigration process (the answer to the question why this is not happening will be presented later in the paper). In addition, it is predicted that the total number of native Japanese residents will decrease (Chart No. 2) from the current (data for 2017)[4] slightly above 126 million people to approximately 98 million people in the optimistic variant at 2060 – if the fertility rate will increase to 1.65. This will not only be a burden for the youngest generation, which will be forced to maintain a much larger population of older people, but it can also be very dangerous for the Japanese economy, which already must face a few serious problems. First, the social expenditures will increase their share in the state budget, which are directly related to the consequences of an aging society. An adequate immigration policy could result in increase of foreign workforce which could help to a few sectors of the Japanese economy.

Source:Own study based on: [access date: 15.10.2018].

The accelerating decrease of Japanese population is wildly seen when the data for 2010-2014[5] will be compiled with the predictions of the National Institute of Population and Social Security Research that from the year 2045 Japan will be losing almost 900,000 residents a year[6].

  1. Japanese population has decreased by 0,77% in the years 2010-2014,

  2. In the high fertility rate variant, the Japanese population is going to decrease annually by 0,79%from the year 2045,

  3. In the medium fertility rate variant, Japanese population is going to decrease annually by 0,82% from the year 2045,

  4. In the low fertility rate variant, Japanese population is going to decrease annually 0,83% from the year 2045.

If the fertility rate will remain low, then in the year 2050 the Japanese population will reach the same level as it was in the year 1950, but with a one significant difference shown in a comparison at population pyramids.

Source:Own study based on:[access date: 15.10.2018]
Source:Own study based on:[access date: 15.10.2018]

Chart no. 3 and no. 4 show what may await for Japan in the foreseeable future if the negative trend is not halted. At this point the other factor must be mentioned, that the Japanese pace of life is not conducive to the development of families – the data collected by The World Factbook indicate that the average age at which women decide to have a child in Japan is 30.7 years (data from 2015)[7]. Analysis presented by The Economist[8] shows that liberalization of the immigration policy could help to solve the problem and maintain rise above the level of birth rate at 1.44, but only if the number of people coming to Japan for a non-tourist purpose will increase to 650,000 annually. It could increase the birth rate to 2.07 and maintain the population in 2060 above 100 million. Nonetheless, this solution seems to be beyond Japanese capabilities, because of the cultural factor. A country which is very hermetic as Japan is, every revolutionary solution need time to implement –the government officials argue, that extending numbers up to 200,000 annually from the 2015 should be enough for the current needs of the state.[9]

The decline in the population is also related to the specific depopulation of less attractive Japanese regions. The intensity of the depopulation process is a direct result of migration (especially of young people) to larger urban centers, which are becoming ever-expanding complex regions[10]. If the migration processes are mainly influenced by the level of economic development of individual regions, one can say that only the largest centers such as Tokyo or Yokohama are dynamically developing. However, the less industrialized regions of the country like Okinawa or northern Japan are beginning to depopulate[11], which is of enormous importance for the economies of prefectures. The direction of internal net migration[12] is presented in Chart No. 5. – six prefectures have been presented with the largest and smallest net migration, but it’s crucial to note that the other prefectures present only a negative net migration data (6 in plus vs 41 in minus). To direct the foreign labor to certain Japanese regions could help to solve at least a few of prefectural issues.

Source:Own study based on: [accessdate: 15.10.2018]

The restrictive immigration policy negatively and directly affects a variety of Japanese economic sectors. The government’s assumptions show that the number of non-tourist foreigners cannot exceed more than 3% of the total population [13]– currently, the number of foreign residents in Japan is around 1.7%, (not even 1 per 1000 native Japanese). However, if the above coefficient will remain, the decrease in the number of Japanese citizens will be accompanied by a decreasing number of foreigners living within its territory, which is a clear contradiction to the previously mentioned declaration of increasing the number of immigrants. The presented data reveal a lack of readiness for changes, the introduction of which is demographically and economically justified. A strong desire to maintain a very ethnically homogenous society may bring higher costs, even though thanks to this homogeneity, Japan can afford world biggest debt among developed economies equivalent to 253 percent of the country’s Gross Domestic Product (data for the year 2017)[14]. Naturally higher immigration numbers could cause some disadvantages like pressure on transport and housing conditions: it may reduce the capacity of transport routes and – due to a greater demand for flats – increase the cost of renting and selling.

Nonetheless, the economic benefits that Japan can achieve thanks to the inflow of labor are disproportionately higher than the fears associated with it. To better illustrate why influx workers can bring added value to the Japanese economy, attention should be paid to the key points of the reform package to stimulate the economy proposed by The Ministry of Economy, Trade and Industry. The government reform project is based on the following assumptions:

  1. financial stimulus,

  2. expansive monetary policy,

  3. structural reforms.

Its short-term assumption is to achieve GDP growth while increasing inflation (the Japanese situation is presented in Chart No.7). However, its immediate purpose is to increase demand for goods, which foreigners could contribute to, because their expenditure structure (including cultural reasons) differs from the expenditure structure of Japanese citizens who are not accustomed to investing in material goods. Reforms of Special Economic Zones are currently underway, which are intended to attract foreign investments and ultimately increase immigration to the country.

Source:Own study based on: [accessdate: 15.10.2018]

To sum up, immigration and broader openness to aspects of globalization (knowledge transfer) will yield more benefits for Japan in the long term than in the short term, where apart from purely economic issues there will be some challenges related to the development of a multicultural society (however, mostly limited to the largest urban centers). However, it should be questioned that in the future the number of foreign workers in major urban centers will be closer to European or American “standards”. In addition, the declining population combined with the prolonged average life expectancy, e.g. the decline in the workforce and increased spending from the state budget, may argue for an increase in the level of immigration of various workforce – not only highly qualified.

Finally, the reforms that would have informal support from immigrants would have a chance of taking Japan from the deflation trap, because nowadays the following regularity can be observed:

Although immigrants would not solve the whole issues, they would certainly contribute to indirect support for the assumptions of reforms. Immigrants may be sui generis solving some of the problems of the Japanese economy, while the directions of internal migration will have more and more negative economic implications – especially due to unfavorable demographic changes. In conclusion, globalization that facilitates population migration can serve Japan in this aspect, if the rulers decide to consistently implement laws that liberalize the current immigration policy. On the other hand, the negative implications associated with the course of such processes as the depopulation of some regions for others or the persistence of negative demographic trends remain a separate challenge.

Sources: [1]









[10] Szewczuk, A, Kogut-Jaworska, M. i Zioło, M. 2011. Rozwój lokalny i regionalny: Teoria i praktyka. Warsaw, C.H. Beck, p. 18.

[11] tokyo-keeps-growing-as-japans-population-falls/.

[12] Net-migration was computed as the difference between in-migrants and out-migrants for each municipality (prefecture). In the statistic “-” (minus sign) means that out-migration exceeds in-migration.

[13] 2014/06/18/voices/japans-immigration-principle-looking-solid-ever/#.VwIj749OIy_.