Japan to Face Labor Shortage of 11 Million by 2040

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Due to low birth rates and an aging population, Japan is projected to face a shortage of more than 11 million workers by 2040. This analysis comes as Japan’s number of births this year fell below 800,000, the lowest level in 123 years, signaling a severe labor force decline crisis.

On the 29th, Recruit Works Institute, a Japanese think tank, announced that Japan’s working-age population will sharply decrease starting in 2027.

According to a report released by Recruit Works, the labor supply in Japan relative to labor demand is expected to drop by 12% in 2040 compared to 2020. This statistic assumes that Japan’s labor demand remains at the current level. The working-age population in 2040 is estimated to be about 59.8 million, which is a 20% decrease from 75 million in 2020.

Here, the working-age population refers to those aged 15 and older who can provide labor within the total population. Military personnel and prisoners, who cannot provide labor, are excluded from the statistics.

Accordingly, the report forecasts that all prefectures in Japan, except Tokyo, will face severe labor shortages by 2040. In Kyoto Prefecture and northern Hokkaido, the labor population is expected to be approximately 39% and 32% short of labor demand, respectively.

The institute analyzed, "The labor gap between Tokyo and regional areas is expected to deepen over time," adding, "As the aging population increases, not only in the medical field where demand is rising, but also in labor-intensive sectors such as transportation and construction, labor shortages are likely to become severe."

The sharp decline in the working-age population is expected to lead to increased demand for foreign workers. To achieve an annual economic growth rate of 1.24% as currently projected, Japan will need about 6.74 million foreign workers by 2040. This is four times the foreign worker demand recorded in 2020.

Recognizing the seriousness of the situation, the Japanese government has begun seeking solutions. Prime Minister Kishida Fumio declared, "We will prepare birthrate countermeasures on a completely different level than before," and initiated a major overhaul of birth policies.

The Kishida Cabinet is considering raising the upper age limit for childcare allowance recipients from middle school to high school students and removing income restrictions so that couples with higher annual incomes can also receive the allowance. The government also plans to increase the male parental leave usage rate from 14% last year to 50% by 2025.

Additionally, applying public health insurance to childbirth costs and expanding social spending related to family policies from 2% to 4% of the gross domestic product (GDP) are also under consideration.

The report stated, "This study assumes that Japan’s economic growth will remain at the current level," and warned, "If economic activity increases significantly beyond the current level, the labor shortage will be even more severe than the study’s findings."

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