Tokyo drift: How Japan can turn its aging workforce into an advantage

By Jonathan Woetzel, Michael Chui, and Georges Desvaux
Tokyo drift: How Japan can turn its aging workforce into an advantage

Japan is on a trajectory toward another decade of anemic growth and intensifying fiscal pressures. With its workforce shrinking, Japan must simultaneously boost productivity and labor force participation through creative adaptations for older workers and an increased focus on robotics in the workforce.

Global fertility rates are dropping across North America, Western Europe, and East Asia, altering economic projections as workforces begin to age. No nation is as experienced with this phenomenon as Japan. As of 2013, a quarter of the nation’s population was age 65 or older. This demographic is projected to expand to 36 percent by 2040, and will reach 40 percent by 2060. The aging Japanese workforce has led to a sense of anxiety and pessimism in Japan—though economic decline is not inevitable. It is, however, a wake-up call. The nation that invented the lean business model has seen its productivity growth stalled below two percent for years. Unless this trend is swiftly reversed, Japan is on a trajectory toward another decade of anemic growth and intensifying fiscal pressures. With its workforce shrinking, Japan must simultaneously boost productivity and labor force participation through creative adaptations for older workers and an increased focus on robotics in the workforce.

Even as Japan continues its prolonged debate about structural reforms that can make labor markets more dynamic and individual sectors more competitive, companies can prepare for the future without waiting for government action. Japanese firms have an opportunity to reinvent themselves—to disrupt existing industry structures, challenge the status quo, and deliver better products and services through scientific and engineering innovations. Manufacturers, for example, can reengineer the assembly line with data-driven automation, 3-D printing, and modular platforms that assemble common components to create a bigger portfolio of distinctive products. Companies’ research and development operations must become more open and collaborative. Retailers can develop more innovative digital-hybrid store formats and use big data analytics to improve pricing, marketing, and sales forecasting. Since Japan cannot grow by expanding the size of its labor force, these types of productivity gains will have to be the primary catalyst for economic momentum.

Encouraging Japan’s seniors to remain in the workforce will be critical for the nation’s economic growth and stability, ensuring that its labor pool is not drained of valuable experience and skills as a large contingent of its national workforce nears retirement. Japanese employers are already experiencing difficulty in filling job openings, and labor shortages will only grow more acute over time unless Japan can boost the number of working seniors.

Business leaders will have to consider the implications of aging on the nature of work, making adaptations within their organizations for older workers. Flexible hours, part-time arrangements, and work-from-home policies are a few options. Older workers can also be reassigned into mentorship and training roles so they can pass their skills and expertise to those coming up through the ranks. Some companies can reengineer the workplace to accommodate aging workers. BMW, for example, redesigned one of its German plants to include a slightly slower production line, better lighting, ergonomic back supports, and robots to handle some basic tasks. Japanese businesses are beginning to apply some of these approaches, especially with regard to both automation and industrial robots.

Public policy must also provide the right incentives to spur workplace changes. In 2013, Japan began to raise its the mandatory retirement age, changing it from 55 to 60 years old. Employers are also required to offer continuing employment options to workers who hit that age, but seniors are often shunted into lower-paying or lower-skilled jobs. Japan expects to have an oversupply of retirement-age office workers in the years ahead, and retraining could help them acquire new skills that are in demand—provided that well-designed programs are made available on a large scale. Improving seniors’ job opportunities is an economic necessity, as well as a means for providing greater engagement and autonomy for the elderly.

Japanese businesses can also find economic opportunities as the nation ages by selling new products to a growing cross-section of the population. Seniors are a potentially lucrative consumer segment, and companies can develop products and services geared to their changing needs and preferences. The Aeon Company’s senior-oriented shopping mall, the Kozo SNS Village social networking site, Fujitsu’s senior-friendly smartphone, Tokutake’s no-slip Ayumi shoes, and the in-home helper services offered by the Benry Corporation are just a few examples.

Japan has enormous opportunities to engage seniors in the workplace, in the marketplace, and throughout society—and success can feed into a broader strategy for reigniting productivity. As the country at the leading edge of the global demographic challenge, Japan will have to draw on all of its considerable human capital and technological prowess to pioneer solutions. It just might create a road map for other aging economies in the process.

This article originally ran in Foreign Affairs

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