Japan's Present is America's Future

After decades of remarkable growth, the Japanese economy hit a wall in the early 1990s, literally and figuratively.

In the following decades, the country went through some remarkable changes, while seeings its economy continue to stagnate. What has happened in Japan over the past 20+ years provides an interesting case study for the United States -- and may specifically offer lessons for an administration seeking to destroy the one, crucial factor that allowed our economy to grow while Japan’s did not.

The end of career jobs

One of the main legacies of Japan’s postwar economic boom was the safety net provided by lifetime jobs at many companies. Even after such arrangements disappeared in Western countries, Japanese could expect to keep their jobs as long as they wanted them. This stability is one reason Japan’s poverty rate remained so low for so long.

Lately, though, that unique system has started to break down. The few career jobs that are left have been taken up for years by employees who got in before the economy stagnated, meaning there are fewer such openings for recent college graduates.

This is leaving many young people stuck working for minimum wage in the service sector, something with which many Americans can also relate. In fact, some youth are even protesting for a higher minimum wage. Taking a page from the Fight for $15 campaign, they hope to raise the Japanese minimum wage from 900 yen an hour to 1,500 yen (or from about $9 to $15)

“If people are working for 900 yen an hour, then even if they are working, they are poor,” Niki Harada, president of the Tokyo Youth Union, told TriplePundit. “It is [estimated] that about 20 million people are in that category – the working poor.”

Still, in many ways, Japanese have it far better than Americans. Income inequality is not as big of a problem in Japan, and CEO salary is (crazy enough) tied to how well the company performs, meaning no golden parachutes or other examples of companies going bankrupt but still giving their CEOs huge salaries. This, of course, gives little solace to the growing number of young people who can no longer make a living, but it is something.

Unfortunately, another massive social change may only increase the burden on those working poor.

Aging population

Japan is the oldest country in the world, demographically. Years of declining birthrates – now at just 1.4 births per woman, well below the accepted replacement rate of 2.2, have made Japan the first country in the world to experience a shrinking population due chiefly to more elderly people dying. The country’s population was just over 128 million in 2010. Five years later, it was just above 127 million.

The means today nearly a third of Japan is made up of people over 65. Outside the big cities of Tokyo, Osaka and Nagoya, you can find entire towns and districts filled with the elderly. Caring for them is becoming a major strain on the central government, especially as it becomes more difficult for the youth to find good jobs and take care of their families.

Sound familiar? The U.S., by comparison, has a national birthrate of 1.9 and is still many years away from a shrinking population, but the ratio of working age to elderly has been falling for several years. There are real concerns about Social Security and Medicare. And the age-gap between people living in economic powerhouses, like San Francisco and New York, compared to middle America is real.

If we don’t figure out how to expand social services, empower rural communities and provide better access to health care, we may soon be in an even worse situation than Japan.

Immigration restrictions make things worse

Of course, there is one key difference between the U.S. and Japan, and that is immigration. America is open to it, and Japan is not. In fact, nearly all of our population growth and increase in national productivity can be tied to immigration.

Japan’s immigration policy is one of the most restrictive in the world. Just 2 percent of the population are migrants, far below nearly any other developed nation. Refugees? Last year, Japan accepted just 28 of them.

America, on the other hand, has historically been open to immigrants, who play a vital role in the economy. They take on jobs that Americans can no longer do, and are also entrepreneurs and the founders of some of our most innovative companies. The most famous example may be Russian immigrant and former refugee Sergey Brin, the co-founder of Google.

In fact, data shows immigrants play a huge role in the American economy – accounting for 15 percent of GDP, and increasing year-on-year economic growth. And, by the way, there’s little or no evidence that immigration has any impact on native jobs, or wages.

Moreover, immigration is the reason our working-age population has remained relatively steady. Americans are also not having as many children, so the influx of mostly younger immigrants is helping to balance this demographic challenge. For now, that is.

Unfortunately, the Donald Trump administration seems to want to destroy this by limiting immigration. It would be, as many economists believe, an economic disaster. Just look at Japan. Since 1990, when the Japanese economy first began to stagnate, and today, the difference in GDP growth between our two countries can be almost entirely attributed to population growth – driven, in the U.S., by immigration.

Lessons

America needs to work to ensure good jobs for people of all age groups, and prepare for what happens when our population ages, otherwise we could be in line for a stagnation à la Japan. But one thing we should not do is close our borders.

Curbing immigration now would only worsen the economy, and hasten greater demographic challenges. Trump is, fittingly, meeting with Japanese Prime Minister Shinzo Abe this week. Let’s hope he learns how not to follow his example.

Photo Credit: George Alexander Ishida via Flicrk.