Skip to main content

Sloan Center News

Aging, Shrinking Labor “Problem” Forces Japanese Human Resource Innovation

13 September 2010—The world's population is aging, and Japan is by far the most severely affected nation. Yet Japanese organizations have not prepared themselves well.

The Japanese population "reached its peak in 2005," observes Florian Kohlbacher, Senior Research Fellow and Head of the Business & Economics Section at the German Institute for Japanese Studies in Tokyo. "Since 2005, the population has been shrinking and aging, and these demographic changes have since become major drivers in the Japanese economy," Kohlbacher said.

While challenging on many levels, the Japanese case presents opportunities for learning, because Japan is ahead of most of the world in terms of demographic change. At the same time, rethinking the retirement age and the resulting changes in the Japanese workforce makeup also offers businesses an occasion for innovation.

Japanese society is shortly expected to experience a Baby Boomer exodus from the workforce, ominously termed the "Year 2007 Problem." Indeed, Japanese Boomer retirement has been predicted to reduce the Japanese labor force by 10 million workers by the year 2030, and by fully 22 million by the year 2050. There are a total of 10.7 million Japanese Boomers. In 2006, 8.2 million of these were actively working, equaling more than 12% of the entire labor force. The "Year 2007 Problem" refers to the year in which the first Japanese Boomers turn 60, and thus move into mandatory retirement, potentially crippling Japanese business from the widespread loss of industry-specific knowledge.

A major reason for concern among Japanese businesses is that Japanese corporate culture has a very distinctive management approach, especially within large organizations. Knowledge is primarily tacit, or taken for granted, and frequently absorbed over long periods of time as workers slowly advance through organizations as they age. Subtleties associated with this type of knowledge, though, are difficult to quantify, document, or access for a new hire.

This potential loss of knowledge and talent is highlighting a gap in workforce planning and sustainability. "Japanese companies have been successful because their products are so good," comments Kohlbacher. "So, traditionally, Japanese firms have not had a strong focus on human resources management on a strategic level. That's changing. Not on the national level—it's about corporate culture. Japanese businesses are realizing that human resource management is not as developed or leveraged as strategically as it should."

Florian Kolbacher presented on Management Implications of Demographic Change in Japan: An Innovation Perspective in August 2010. For more on the subject, please read Florian’s article “Baby Boomer: What happened to the ‘Year 2007 Problem?’ in the April 2010 edition of ACCJ Journal.