Managing Japan’s Shrinking Labor Force With AI and Robots - IMF F&D Magazine - June 2018 | Volume 55 | Number 2
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- Managing Japan’s Shrinking Labor Force With AI and Robots - IMF F&D Magazine - June 2018 | Volume 55 | Number 2
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- Authors: TODD SCHNEIDER, GEE HEE HONG, ANH VAN LE
- Published: June 1, 2018
- Volume: 55
The rise of automated jobs
- Automation will eliminate very few occupations entirely in the coming decades but is likely to affect portions of almost all jobs to some degree—depending on the type of work and the tasks involved.
- Automation is set to move beyond routine and repetitive manufacturing activities into a much broader range of activities, potentially redefining human labor and work style in services and other sectors.
- Japan’s rapid decline in the labor force and limited influx of immigrants create a powerful incentive for automation, making the country a particularly useful laboratory for studying the future landscape of work.
Vanishing act — demographic drivers and projections
- Japan’s estimated population fell by a record-breaking 264,000 people in 2017.
- Currently, deaths outnumber births by an average of 1,000 people a day.
- Japan’s birth rate currently stands at about 1.4 births a woman (well below the 2.1 births a woman needed to sustain growth).
- Nearly a third of Japanese citizens were older than 65 in 2015; research suggests that number will rise to nearly 40 percent by 2050.
- The Population Division of the UN Department of Economic and Social Affairs estimates Japan’s population will dip below 100 million shortly after the middle of the 21st century.
- By the century’s end, Japan stands to lose 34 percent of its current population.
- Japan’s domestic labor force (those ages 15–64) is projected to decline by some 24 million between now and 2050.
- With immigration unlikely to rise enough to compensate, Japan faces dim prospects for productivity, potential output, and income growth.
Made in Japan — historical strengths in robotics and current standing
- Japanese firms such as FANUC, Kawasaki Heavy Industries, Sony, and Yaskawa Electric Corporation led robotic development during Japan’s economic rise; Kawasaki Robotics started commercial production of industrial robots over 40 years ago.
- About 700,000 industrial robots were used worldwide in 1995, 500,000 of them in Japan.
- Japan exported some $1.6 billion worth of industrial robots in 2016—more than the next five biggest exporters (Germany, France, Italy, United States, South Korea) combined.
- Japan is among the most robot-integrated economies in terms of “robot density” (robots relative to humans in manufacturing and industry); Japan led the world until 2009 when Korea’s use of industrial robots surged and Japan’s industrial production increasingly moved abroad.
For richer or for poorer? — productivity, sectoral divergence, and examples of automation adoption
- Services account for 75 percent of GDP in Japan but have seen little annual productivity growth—only about half that of the United States.
- Labor productivity has roughly tripled since 1970 in manufacturing, but improved by only about 25 percent in the nonmanufacturing sector.
- The coming wave of automation and artificial intelligence promises possibilities for replacing or augmenting labor in nonmanufacturing sectors (transportation, communications, retail services, storage, and others).
- Examples of technology adoption:
- Family Mart is accelerating implementation of self-checkout registers.
- Colowide and many restaurant operators have installed touch-screen order terminals.
- Other examples include robot chefs, robot hotel staff, and applications in health care, financial, and transportation services.
- IMF staff calculations—based on an approach pioneered by Acemoglu and Restrepo (2017) using prefectural level data from Japan—found increased robot density in manufacturing to be associated with greater productivity and local gains in employment and wages (these findings exclude crisis periods).
- These Japan-based findings contrast with results from a similar exercise using US data.
For better or worse? — potential economic pathways and social risks
- Reasons Japan may experience faster integration of robotics and AI than other advanced economies:
- Shrinking population and a more rapidly shrinking workforce driving industries to invest in new technology, including small and medium-sized enterprises.
- Aging population creating substantial labor needs in health and eldercare that cannot be met by natural workforce entrants.
- Declining quality of services: research shows quality of services is eroding as a result of labor shortages, most critically affecting parcel delivery services, hospitals, restaurants, elementary and high schools, convenience stores, and government services.
- IMF staff simulations across Group of 20 countries point to risks of declining labor shares, income polarization, and rising inequality if substantial transition costs occur (unemployment, lower wages) as automation substitutes for human labor.
- Applying the same simulation approach only to Japan yields different results: with a shrinking labor force, even fully substitutable automation could boost wages and economic growth—automation and robotics can fill the labor gap and result in higher output and greater income rather than replacement of the human workforce.
- Societal and welfare risks remain, including polarization of the labor force if only a small proportion of workers have the training and education to leverage robotics’ productivity gains.
- Research suggests the female labor force—having swelled in the past five years—is particularly vulnerable to displacement, given the heavy concentration of women in nonregular jobs (temporary, part-time, or other positions outside the mainstream), whose tasks are more susceptible to automation (Hamaguchi and Kondo 2017).
Domo arigato, Mr. Roboto? — uncertainties, infrastructure, and policy implications
- Significant uncertainties remain about the pace and extent of robotics and AI advancement and their adaptation outside manufacturing.
- Nontrivial technological challenges and a range of hurdles related to supporting infrastructure and legal frameworks need resolution, including consumer protection, data protection, intellectual property, and commercial contracting.
- Policy priorities for managing the transition:
- Accept that change is coming and prepare for substantial structural shifts in the labor market.
- Strengthen and maintain strong and effective social safety nets to address disruption of traditional labor and social contracts.
- Invest in education and skills development to enable broader participation in high-tech jobs.
- Pursue policies to bring greater equality into the labor force—between men and women, between regular and nonregular employees, and across regions—so that benefits and risks of automation can be more equally shared.
- Japan’s experience could offer lessons for China, Korea, and European advanced economies that will face similar demographic trends.
Authors: TODD SCHNEIDER; GEE HEE HONG; ANH VAN LE. F&D Magazine, June 2018.
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