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Below is an excerpt from a new Demography Unplugged research note written by Demography analyst Neil Howe. Click here to learn more and get a special deal.

Can Aging Japan Thread the Foreign Worker Needle? - z japan hedgeye

Japan—one of the world’s most immigration-resistant countries—is increasingly recruiting foreign workers in what amounts to a grand social experiment. The aging nation needs workers, but is welcoming more immigrants with extreme caution amid fears of political and social unrest. (The Wall Street Journal)

Most economists postulate that a wealthy aging economy has much to gain from a relationship with a poor young economy. By investing in the young economy, it can get a higher ROR on its capital. And by trading with the young economy, it can buy low-skill or low-capital intensity goods at a lower relative price.

Unfortunately, cross-border investment and trade only gets you so far. Much of what a wealthy economy consumes consists of non-tradable services--everything from cleaning and gardening to nursing and driving. Also, if your fiscal system depends on taxing the young to care for the old, importing cheaper products is of limited benefit. To derive the full advantage from the poor economy, the wealthy economy needs to import the poor people--not just the things they make. 

This is a good way to think about what Japan is trying to do. Japan has little interest in new citizens. Japan has a long history of discouraging the assimilation of foreigners. This distinguishes Japan--and indeed most of East Asia and much of continental Europe--from nations with a history of high net in-migration rates (for example, the UK, Canada, New Zealand, Australia, and the United States).

In the Anglo-Saxon model, immigration is favored for social and political as well as economic reasons. By tradition, they see themselves as diverse, pluralistic, and open-ended. Their political institutions are (within limits) predicated on ideas that transcend a single ethnicity, language, or place of birth.

So here is the question: Can Japan thread the needle and find a way to benefit economically from new workers without extending the political or social benefits of real citizenship?

We'll find out. 

Abe's new program imports people from poorer Asian countries like Vietnam and the Philippines for training and work on a strictly "guest-worker" basis. Workers cannot bring family members, must pass tests in Japanese language and manners, must work under close employer and government supervision, and must return home within five years. The government can dial back the program or terminate visas without notice.

In theory, these workers could pass an exam to qualify as permanent residents after living in Japan continuously for ten years. In practice, the five-year "go home" rule will make that unlikely.

Having so little contact with immigrants, the Japanese public is supportive so far. Japan is one of the only nations in the world today in which people say they favor more rather than less immigration. Employers certainly support the program. Still, public protests have occurred at locations where these guest workers are being trained.

The numbers are ramping up: In 2018, the total number of guest workers was about 160,000 more than the year before. That's still less than half of the U.S. immigration rate. But it is an unprecedented inflow for Japan.

If the experiment continues, the biggest crossroads facing the government will be whether to continue imposing strict limits on residency and family members (as the Gulf states do on migrant workers from India). Or whether it begins to allow families to become full immigrants--and if so, on what terms.

As Germany discovered with its own postwar guest-worker program for Turkish workers, it's difficult for people to live and work side by side in the same community without basic questions about rights, equality, and citizenship being raised.