The model simulation results show that the supply factors, particularly the labor supply, will constitute a major bottleneck to sustaining economic growth beginning from the mid-1990s. One of the ways to overcome this supply-constrained growth scenario is to shift a considerable amount of production to areas outside Japan by exporting capital to the sources of cheap labor. This policy option is, however, threatened by political instability in receiving countries, and the loss of Japanese comparative advantages as a result of Japan's transfer of technology and management skills to business leaders in the receiving countries.
A second policy option related to labor is to change Japan's traditional employment and wage practices to accommodate a rapidly growing elderly labor force. A key factor is how quickly Japanese businesses can change their management strategy formed during the labor-surplus period of the 1950s and 1960s, and replace the seniority-based wage structure with the ability-oriented remuneration system. Also, evidence that has been amassed to date indicates that the government's various subsidy programs for facilitating the employment of aged workers are not enough. To achieve the government's specified goals, it may be necessary to impose heavy penalties for noncompliance rather than to rely on persuasion to influence employers.
Japan's future shortage of young workers can be partially remedied by the development of labor-saving technology such as robots and automated production methods. At the same time, older workers should be encouraged to familiarize themselves with the use of microelectronics and related modern technology. To facilitate this process, part of the technical development efforts should be directed toward the simplification of the operation of productive equipment so that elderly workers can easily use it. Also desirable is a better utilization of young workers. To promote technological innovations, a considerable proportion of these young workers with modern scientific knowledge should be effectively allocated to highly technology-developing sectors, preferably through government incentive and disincentive schemes.
International labor migration, which is another policy option, is a recent phenomenon in Japan. At present, although the Japanese government allows businesses to export wealthy retired persons to various resort areas in several countries such as Australia and Canada (Martin, 1989), it prohibits business firms from importing labor except for those with highly-specialized skills such as foreign language teachers and professional athletes (Ogawa, Jones, and Williamson, 1993). The proportion of foreign nationals in the Japanese labor force is the lowest percentage among the industrialized nations (Abella, 1989).
