Global fertility rates are dropping across North America, Western Europe, and East Asia, altering economic projections as workforces begin to age. No nation is as experienced with this phenomenon as Japan. As of 2013, a quarter of the nation’s population was age 65 or older. This demographic is projected to expand to 36 percent by 2040, and will reach 40 percent by 2060. The aging Japanese workforce has led to a sense of anxiety and pessimism in Japan—though economic decline is not inevitable. It is, however, a wake-up call. The nation that invented the lean business model has seen its productivity growth stalled below two percent for years. Unless this trend is swiftly reversed, Japan is on a trajectory toward another decade of anemic growth and intensifying fiscal pressures. With its workforce shrinking, Japan must simultaneously boost productivity and labor force participation through creative adaptations for older workers and an increased focus on robotics in the workforce.
Even as Japan continues its prolonged debate about structural reforms that can make labor markets more dynamic and individual sectors more competitive, companies can prepare for the future without waiting for government action. Japanese firms have an opportunity to reinvent themselves—to disrupt existing industry structures, challenge the status quo, and deliver better products and services through scientific and engineering innovations. Manufacturers, for example, can reengineer the assembly line with data-driven automation, 3-D printing, and modular platforms that assemble common components to create a bigger portfolio of distinctive products. Companies’ research and development operations must become more open and collaborative. Retailers can develop more innovative digital-hybrid store formats and use big data analytics to improve pricing, marketing, and sales forecasting. Since Japan cannot grow by expanding the size of its labor force, these types of productivity gains will have to be the primary catalyst for economic momentum.
Encouraging Japan’s seniors to remain in the