Scalise: The Economics of Japanese Immigration

Should Japan welcome more immigrants? Diehard multiculturalists insist that migration to Japan is not only inevitable but also enhances “mutual understanding.” Others fear the opposite: the chaos these outsiders, or gaijin, conceivably bring to Japan’s safe streets and largely homogeneous society. Both extremes understand the politics of emotion far better than the economics of immigration, keeping the issue shrouded in half-truths.

The problem is usually described in apocalyptic terms, roughly as follows. According to the National Institute of Population and Social Security Research, Japan’s population has peaked. A downward turn is expected to follow, reaching close to 100 million in 2050 and 45 million in 2105. That means fewer workers paying fewer taxes to support an already expanding army of senior citizens. With social security, pensions, and interest payments on the national debt occupying more than 50 percent of Japan’s national budget in 2009 (up from 19 percent in 1960), the government, sooner or later, will face a decision of crisis proportions. Does it raise taxes sharply? Cut benefits drastically? Go deeper into debt? Or throw open the doors to young foreigners to restore balance between workers and retirees?

What the debate misses, however, is that immigration reform will likely have a muted impact on Japan’s standard of living if productivity continues to sour and Japanese women remain underutilized. Robert Alan Feldman, chief economist at Morgan Stanley Japan, figures that Japan would need between 7.4 million and 11 million immigrants to maintain a comparable standard of living in 2012 alone, depending on the decline in Japan’s local productivity. Should immigrants bring dependent families, Feldman says this “avalanche” would have to be closer to 20 million.

Hardly anyone realizes how unlikely Japan is to open up to an immigration boom of such magnitude without answering some difficult questions: what kind of immigrants does it want and how to attract them? One problem is that bringing in too many low-skilled immigrants too quickly risks increasing competition for low-skilled jobs and reducing the earnings of low-skilled native-born workers, according to immigration economist Barry R. Chiswick. In this view, because of their low earnings, low-skilled immigrants tend to pay less in taxes than they receive in public benefits. So while the presence of low-skilled immigrant workers may raise the profits of their employers, Chiswick notes, “they tend to have a negative effect on the well-being of the low-skilled native-born population, and on the native economy as a whole.”

Highly skilled, high-wage immigrants present their own problems. Feldman’s Japan model assumes that the average immigrant would be less productive than local hires because of different languages, work habits, traditions, and educational needs. And what’s never explained is how to attract the “right” immigrants and assimilate them in the first place. Right now, Japan’s average compensation per employee (adjusted for purchasing-power parity) is 36 percent lower than in the U.S. and 15 percent lower than in the euro area, according to the OECD. Worse, monthly cash earnings have been falling slowly for the past decade. If Japan wants to attract doctors, nurses, and engineers, and keep them, it needs to pay them more. And therein lies the rub. Is it really worth it in the long run?

Japan’s Ministry of Health, Labor and Welfare estimates the fiscal cost and benefits of an influx at three different stages of an immigrant’s life. In stage one, when only single youths are admitted, the government gains more in tax payments than it pays in benefits. In stage two (with spouse) and stage three (with spouse and two children), the benefits paid by the local and central governments far exceed the tax revenues. If 500,000 migrants were to enter Japan in stage three, the ministry estimates, the net loss would become a whopping ¥1.1 trillion, or about $12 billion.

No one knows for certain the extent of the blowback if Japan were to be the migrant sponge of East Asia’s and Latin America’s poor. Instead of a cost-benefit analysis, pundits, activists, and the mainstream media focus mainly on the politics, rarely the economics. Either immigrants are depicted as a feel-good panacea to everything that ails Japan, who are kept at bay by a xenophobic Japanese government, or they are deemed devious criminals and a threat to society. Neither is accurate. Both are distracting. It’s time the focus of debate changed.

Scalise is research fellow at the Institute of Contemporary Asian Studies, Temple University, Japan Campus.

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