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Low productivity, ageing key challenges for Japan
25-06-2008
PARIS – Although Japan is experiencing the longest period of economic growth in its post-war history, it is facing considerable challenges to maintain that growth, according to a peer review of Japan by the Paris-based Organisation of Economic Co-operation and Development (OECD).
Japan needs to step up reforms in key areas, including taxation, labour and services, to release its economy from many existing constraints on growth, the OECD says, adding that, since 1992, Japan has slipped from fifth to 19th position within the OECD area in terms of per-capita income.
Japan’s rapidly-ageing population is posing a burden in terms of provision for welfare and pensions for the aged, the review says. Japan is projecting an annual rise of three per cent over the next decade in welfare spending, reaching 18.4 per cent of GDP by the 2015 financial year.
Its shrinking workforce is aggravated by a decline in productivity, which is now the lowest among OECD countries.
Japan's recent economic recovery is credited to a 40 per cent jump in business investment since 2002 and strong export growth, particul-arly to other Asian countries. Half of all Japanese exports go to Asia. Japan’s total exports expanded by almost nine per cent during 2007, despite weak demand from the US.
In its review, the OECD urges Japan not to lift interest rates, which have remained unchanged since early 2007, because of lingering deflation. Japan’s consumer price index has dropped for 37 consecutive quarters – or for a ninth consecutive year.
Japan has reduced its fiscal deficit from 8.2 per cent of GDP in 2002 to around four per cent last year, but Government debt has continued to rise, reaching around 180 per cent of GDP.
The OECD calls on Japan to broaden its tax base and to increase its goods and services tax from the present five per cent to the level of other OECD countries. It says a one percentage point rise in the consumption tax rate would boost Government revenue by about 0.5 per cent of GDP. It notes that Japan collects corporate taxes from around 30 per cent of Japanese firms – only half of all large firms – and needs to widen tax collection from Japanese companies. It should also aim to reduce the level of corporate tax from 40 per cent – currently the highest among OECD nations (the OECD average is 29 per cent).
Japan must counter the effect of its ageing population by increasing the participation of women in its workforce, the OECD says. Currently, women make up two-thirds of what is known as the ‘non-regular’ (casual) workforce. The OECD says a higher participation rate by women would help buffer the impact of the decline in the working age population, projec-ted to fall by nine per cent in the decade beginning 2007.
Labour productivity in Japan is 30 per cent below the level of the United States, in part because of a significant slowdown in productivity growth in the service sector. Back in the heyday of Japanese economic development, from 1976 to 1989, Japan’s productivity grew at 3.5 per cent a year. At that time, Japan's potential growth rate was around four per cent.
Japan's potential growth rate is now estima-ted at 1.4 per cent from 2004 to 2013, the lowest in the OECD area, reflecting a large negative contribution from the declining working-age population. Japan is urged to allow competition to increase in five key service industries – retail, energy, transport, business and public services.
Japan taps more
older workers
TOKYO – With more Japanese businesses tapping elderly workers to cope with labour shortages, employees aged 65 or older are increasing, topping two million for the first time last year. The ranks of those wishing to work beyond 65 – the eligibility threshold to receive pensions – is also growing.
Japan's workforce crept up 2% to 51.74 million in 2007, of which 2.09 million were 65 or older, according to Internal Affairs Ministry data. These older workers jumped 15% from 2006, and were up 32% from four years earlier – a rise attributed to an improved employment environment. With the greying of society, more than 20% of Japan's total population was 65 or older in 2005 – the highest proportion among developed nations (Asia Pulse).
ATI Magazine Online May 2008 |
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