How can a declining population create labor shortages in Japan?

Japan’s declining population creates labor shortages primarily because the country’s working-age population (ages 15–64) has been shrinking since the early 1990s. This demographic shift is driven by a sustained decrease in births and a rapidly aging society, where approximately 30 percent of the population is now age 65 or older.1

As the number of young workers declines, several sectors—most notably education, health care, and manufacturing—face significant staffing challenges. This scarcity of labor has forced many small and medium-sized companies to scale back operations or close entirely.1

To mitigate these shortages, Japan has historically relied on temporary foreign workers during periods of high demand. Additionally, the prospect of a shrinking workforce prompted Japanese manufacturers to become global leaders in the development and adoption of industrial robots, using advanced automation to maintain productivity despite a smaller human labor pool.23