Fourth Valley

FV think tank

NO.1     2020/Jul.

Market Analysis of Foreign Talent Market in Japan Column No.1: The country with the highest rate of increase in foreigners is Japan. Japan's economy is supported by foreigners

[The number of foreign workers in Japan is increasing by this much!]

There are approximately 260 million immigrants in the world and around 160 million of them are workers. If you look at the number of foreign laborers in OECD countries, the U.S. has the most, followed by Saudi Arabia, Germany, and Canada. Which country has the highest rate of increase in terms of foreign workers?
It's actually Japan!

<Graph 1: Number of foreign workers by country>

As of 2019, there are 1.66 million foreign workers in Japan (this is several tens of thousands more than the entire population of Kagoshima Prefecture)
The number of foreign workers in Japan increased by around 1.9 times, a significant increase between 2015 and 2020. Although their share of the total workforce is low at 2% (2017), no other country has seen such rapid growth in the number of foreign workers as Japan.
By understanding how many foreigners are working in Japan and what is behind the increase, we can see that they are an indispensable part of the future of Japan.

Before looking at the background of the increase in foreign workers, let's take a closer look at the foreign workers in Japan.

<Graph 2: Nationalities of foreigners working in Japan>

Source: Ministry of Health, Labor and Welfare

According to the "Summary of 'Foreign Employment Status' Notification Status" (Ministry of Health, Labor and Welfare), as of October 2019, the top five countries of origin of foreign workers are, in order, China, Vietnam, Philippines, Brazil, and Nepal.
By the way, five years ago the rankings were China, Brazil, Philippines, Vietnam and South Korea.

At that time, China, Brazil, and the Philippines alone accounted for about 70% of the total employment, but this figure has declined to less than 50% today. Although China has remained in first place since 2008, when the "Summary of 'Foreign Employment Status' Notification" was first published, its share of the total has shrunk from 42% to 27% in the last five years.

<Graph 3: Nationality of Foreign Workers>
Source: Ministry of Health, Labour and Welfare

On the other hand, the influx of people from Vietnam, Nepal, and other lesser-known countries to Japan is increasing, indicating that foreign workers in Japan are becoming more and more diverse.

[Why is the number of foreign workers on the rise?]
The growth rate of foreign workers in Japan is high compared to other developed countries (Graph 1), but why is the number of foreign workers increasing so much?

The reason is still because of the shortage of labor

<Graph 4: Japan's Total Population and Working Age Population (15-64 years old)>

Source: Statistics Bureau of the Ministry of Internal Affairs and Communications, National Institute of Population and Social Security Research

The total population peaked in 2011 due in part to longer life expectancy. The working-age population reached its highest in 1995, much earlier, and has been declining ever since. Although the birth rate has been recovering slightly since 2004, the number of births has been decreasing steadily since 1973, and the number of women of childbearing age itself has been continuously decreasing, making it difficult to solve the problem of population decline by recovering the birth rate.
In addition, as the baby boomers begin to enter their mid-70s, the percentage of elderly people in the later stages of life is expected to increase further, and the labor shortage in Japan is expected to become even worse.

<Graph 5: Changes in the ratio of active job offers to applicants>

Source: Ministry of Health, Labour and Welfare

The average annual jobs-to-applicants ratio in 2019 is the second highest in nearly 50 years and is even higher than during the economic bubble. More on that will be discussed in a future report, but when the issue of labor shortages is discussed, solutions through AI use often becomes the topic. However, in many cases, AI can be difficult to replace in some industries and professions, and especially for small and medium-sized businesses, it can be difficult to adopt AI solutions in a quick manner. Private reports say it will be around 30 years before AI replaces managerial jobs, and even if technology can solve the problem, the question of how to solve the labor shortage until then remains.
Domestic labor cannot make up for the lack of manpower, and it's difficult to secure a workforce through means other than manpower. Under such circumstances, foreign workers are a part of what support Japan's economic activities.