Effects of Immigration in Japan: A Computable General Equilibrium Assessment

Abstract

Due to an aging population and falling birthrates, the labor force in Japan will continue to decline in the next decades, and per capita income is also likely to decrease. To address this problem, the Japanese government is considering relaxing restrictions on foreign labor, and there have been debates regarding accepting foreign workers in Japan. Current Japanese law imposes strong restrictions on unskilled foreign labor; thus, relaxing these restrictions will lead to an inflow of unskilled foreign workers into Japan. However, few studies have analyzed the possible quantitative effects of such measures.

Using a simulation based on a computable general equilibrium model, this paper analyzes the quantitative impacts of the foreign labor inflow on the Japanese economy. Our model is a recursive dynamic model from 2010 to 2030 with 32 sectors. We categorize labor into the following two types: skilled and unskilled. In the main scenario, we assume an inflow of 5.32 million unskilled foreign workers, which is equal to half of the labor force decrease in Japan.

The results of the main scenario are summarized as follows. First, foreign labor inflow lowers the wage rate of unskilled labor but raises that of skilled labor and the rental price of capital. Second, the inflow increases the GDP, income, and consumption, but the increases in income and consumption are very small compared to the increase in GDP. Third, the inflow has very different impacts on the different sectors. Fourth, we show that a policy limiting the sectors that accept foreign labor does not necessarily increase the output of these sectors. Finally, we show that if we accept not only unskilled but also skilled labor, the impacts on wage rates change significantly.

Keywords: foreign labor inflow, immigration, Japan, computable general equilibrium analysis

JEL Classification: D58, F22, F66, J61