Why Is There a Labor Shortage in Japan?

Japan has slipped from being the 3rd largest economy to 6th place globally, and the primary reason for this decline is severe labor shortages. The aging population and declining birth rates are also adding fuel to the fire, hampering the country’s financial and GDP growth plans.

However, Japan is always known to be a resilient country and hence has adopted numerous measures to tackle labor shortages and drive growth in various sectors. Let’s analyze the reasons behind Japan’s labor shortage and how this can be a terrific opportunity for building a career in Japan for international talents.

Current Japanese Job Market Situation

As we are heading towards the mid-year of 2025, Japan’s job market landscape is set to undergo a rapid transformation due to evolving workplace dynamics, technological advancements, shifting demographics, and a strategy of roping in foreign talents to fill the gaps in labor shortages. Here are the major trends affecting Japan’s dynamic job market in 2025:

• Japan’s aging population and low birth rates are creating a severe labor shortage, affecting the country’s growth plan and international standings as a global economic power.
• There is a high demand for skilled talent, especially in the fields of technology, healthcare, and manufacturing.
• Although Japan’s labor shortage​ is imminent, the unemployment rate is still in good shape and is expected to decrease from 2.6% in 2024 to 2.4% in 2025.
• The job-to-applicant ratio remains high remains elevated, with 124 job openings available for 100 job seekers. This has forced Japanese companies to increase wages and look at internal talent to fill the vacancies.
• The tech sector in Japan is facing severe workforce shortages requiring approximately 2,20,000 IT professionals to meet the requirement. The specific areas in demand are cybersecurity, AI, data science, and cloud computing.
• Japanese companies are shifting from traditional approaches to hiring candidates based on loyalty and long-term potential to specialized expertise.
• Most companies in Japan are emphasizing Diversity, Equity, and Inclusion (DEI) in their hiring strategies.
• Although there is a huge demand for international talent in the Japanese job market, integrating them into Japanese work culture and language barriers still poses a great challenge.
• By 2035, the number of international workers in Japan is set to reach 3.77 million from 2.05 million in 2023.

What are the Reasons for Labour Shortages in Japan?

The key reasons for Japan’s labor shortage​ are:

• Japan’s aging population, with a sizeable portion nearing retirement age, is a major hurdle in fixing Japan’s labor shortage.
• The birth rate in Japan is plummeting alarmingly, creating severe shortages in young workers.
• Traditionally, Japanese immigration policies are stringent compared to other developed countries, creating difficulties for foreign talents to create a career in Japan.
• Japanese work culture and language hierarchy systems may pose difficulties for certain foreign talents to migrate, especially from Western countries like the USA, Canada, the UK, etc.

Industries Most Affected by the Labour Shortage in Japan

Although Japan’s labor shortage problems persist in all sectors, the major industries that are severely handicapped due to workforce shortage include construction, IT services, healthcare, hotel management, and logistics. The Japanese government is making efforts to reduce the gaps in labor shortages through labor participation from women. However, labor productivity has come down significantly due to this move. Here is a list of industries with the most labor shortages in Japan based on the job-to-applicant ratio.

Changing Work Preferences and Urban Migration Trends in Japan

In Japan, traditionally, long working hours and “working in one company till retirement” were followed till recent years. However, the trends have changed, and employees prefer a working model that emphasizes work-life balance and personal fulfilment. Also, the Japanese government is promoting a better working style by reducing the number of working hours and bringing flexible work schedules that include remote working and shorter work weeks.

The Japanese workers are using the “quiet quitting” strategy to get out of their current roles and move on to better opportunities. Also, young graduates of Japan prefer to work in startups rather than take up traditional corporate jobs, marking a significant change in seeking job satisfaction rather than job security. Moreover, Gen Z is opting for companies that offer work-life balance and refusing to work in strict environments.

Japanese working professionals and youngsters are moving from rural areas to urban areas, especially Tokyo, to seek a better life. Also, the female population migrating to urban areas is rising significantly as they seek better study and job opportunities.

This move has created a significant decline in the rural population and labor shortages in rural industries, especially in the field of agriculture. Contrary to this, experienced workers from urban cities like Tokyo are moving towards rural areas to avail of affordable housing and reduced living expenses.

To combat this and create a balance, the Japanese government has initiated efforts in the rural startup ecosystem to retain workers and improve rural economies.

Government Measures to Attract and Retain Workers in Japan

Here are the major steps taken by the Japanese government to attract and retain talent.

1. Revised overtime policies

The Japanese government has committed to providing work-life balance for its employees to reduce overwork and improve employee well-being. Companies operating in Japan must follow compliance measures diligently and ensure that a safe working environment that focuses on employee welfare is provided.

This will improve productivity in the long run and help employees have more personal time with their loved ones.

2. Extended parental leaves

To combat Japan’s declining birth rate, the government has introduced an extended parental leave period to help parents take care of their newborns better.

3. Mandatory ESG reporting

Environmental, Social, and Governance (ESG) considerations have become a key part of businesses in Japan. The government has mandated to inclusion of HR metrics related to diversity, inclusion, and other employee initiatives to be part of ESG reporting. This will create an inclusive work environment and bring more transparency to workforce management.

Tapping Global Talent: The Evolving Role of Foreign Workers in Japan

Currently, Japan is experiencing quite a surge in foreign workers, with 2.3 million in 2024, and the trend will continue. As Japan’s labor shortage persists, Japanese companies have taken the route of hiring skilled foreign professionals across the globe in fields like IT, healthcare, hospitality, manufacturing, etc., where specialized expertise is of utmost importance.

To attract and retain foreign talent, the Japanese government has modified its visa and immigration policies, such as the Specified Skilled Worker (SSW) visa, which allows a longer stay and brings family members to the country in an easier manner.

Also, Japan is falling behind when it comes to creating work-life balance and diversity in the workplace when compared to other developed countries.

The introduction of more foreign workers can boost diversity initiatives and bring a new perspective that can help Japan improve its standings on the international stage.

How can Alp help in making a career in Japan?

We have realized that Japan is one country where foreign professionals can excel and make a great career, especially for talents from India. Japanese and Indian work cultures have some similarities, like respecting everyone regardless of position, following hierarchy, loyalty, job security, etc..

If you are a student currently pursuing graduation or a working professional seeking a career in Japan, ALP Consulting provides the best pathway toward building a successful career in Japan.

At Alp, we are offering a well-structured end-to-end career development program for students and working professionals that combines education, Japanese language training, cultural exposure, internship, and placement assistance to build a career in Japan.

The typical structure of our career development program in Japan includes:

• Internship opportunity.
• N3-level Japanese language learning support.
• Interview opportunities with our Japanese clients.
• N2-level Japanese communication and cultural training.
• Visa assistance and onboarding support in Japan.

Connect with ALP Consulting if you need more information on our career program in Japan.

Frequently Asked Questions (FAQs)

1. What skills are most in demand in Japan’s job market?

The skills that are most in demand in Japan are cybersecurity, AI, IT, nursing, finance, cloud computing, and data science.

2. Is Japan hiring more foreigners?

Yes, Japanese companies are hiring more foreign talent to compensate for severe labor shortages and improve business outcomes.

3. Which job is in high demand in Japan?

Japan has a high demand for numerous job categories, especially construction, nursing, healthcare, transportation, etc.

4. Can AI help solve Japan’s labour shortages?

Yes, AI has supported Japan in automating numerous processes and reducing the workload of employees, but it can’t be considered a permanent solution for filling Japan’s labor shortage.

5. What is the work style of Japan and the reason for labour shortages?

The work style of Japan is based on loyalty, long working and hours and following a hierarchy. The main reasons for Japan labour shortage are aging population and low birth rates.

6. How is Japan solving its labor shortages?

To combat labor shortages, Japan has devised a multifaceted approach of hiring more foreign workers, including women and the elderly in the workforce participation, making immigration policies less strict, and embracing AI and automation.

7. How Serious Is Japan’s Labor Shortage?

Japan’s labor shortage is a serious and growing concern that might hamper its growth initiatives both at the domestic and internal stages. As per estimation, Japan will have a shortage of 11 million workers by 2040 in various sectors.

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Rajkumar Shanmugam

Head of HR

Rajkumar Shanmugam is the Head of HR at ALP Consulting, bringing over 19 years of comprehensive HR leadership experience across India and international markets. His expertise spans talent acquisition, employee relations, performance management, compliance, and HR transformation. Rajkumar has a proven track record of driving people-centric initiatives, enhancing workplace culture, and aligning HR strategy with business goals. With extensive experience in US staffing operations and global mobility, he continues to lead organizational excellence through innovation and employee engagement.