AI can enhance productivity and wages
for Japanese workers.
Economic output per worker in Japan has remained at the same levels as in 2010.5 Japan has the lowest labour productivity of all G7 countries. This has led to stubborn stagnation, marked by low economic growth corresponding with creeping inflation.6 7
AI offers a significant opportunity to reverse over a decade of lagging productivity, by automating repetitive tasks and freeing up worker time to pursue higher value activities. 8 9
According to our analysis, today’s AI technologies are likely to significantly augment around 48% of workers, boosting their productivity. In contrast, we found 21% of today’s workers are at risk of displacement from AI, indicating a need for upskilling – an area in which AI could also support.10
We have already seen AI’s potential to boost the skills base of workers: helping them catch up with the performance of the best workers in their environments and being more productive at work.
On average, we estimate that AI could save the average worker 2 hours in administrative tasks a week.
By boosting productivity and allowing workers to focus on higher value tasks, AI raises the value of hours worked and creates potential wage increases of 9%.
Japan has the lowest labour productivity in the G7.
GDP per hour worked, USD current prices 2022, Purchasing Power Parity (PPP)
Source: OECD
In our modelling, we found that the potential skills gains from AI could boost average worker productivity by over
(USD 1,400) a year. This is equivalent to around an extra month’s wages for the average Japanese worker.
AI can offset ageing related labour shortages.
Japan has the oldest population in the world. While the population of those aged under 64 has fallen between 1996 and 2020, the population of over-65s has increased by 89% in the same period.11
Rapid demographic decline has left Japan with a steadily shrinking workforce. The working age population is projected to fall by 18% by 2040, leaving a shortage of 11 million workers. Labour shortages are then likely to be largest in key economic and social sectors such as construction, transport and caregiving.12
AI offers a much needed solution. By automating tasks in sectors where labour is scarce, AI can help maintain production levels despite an ageing workforce. By enhancing existing capabilities, AI can also increase the output per worker, helping even a smaller workforce be more productive. In total, we estimate that the greater use of AI could help offset 41% of potential labour shortages in Japan driven by an ageing population.
The University of Tokyo partnership with Google highlights how AI can be used to better guide workers to industries facing labour shortages.
Ongoing and projected changes in the Japanese population.
Source: The World Bank
Google and the University of Tokyo are using AI to solve Japan’s critical workforce challenges.
In June 2024, Google announced a ground-breaking partnership with the University of Tokyo to tackle the challenges of Japan’s ageing population head-on. Launched from the Matsuo-Iwasawa Laboratory, this partnership is deploying generative AI solutions across all 47 Japanese prefectures with one primary goal: to bolster the existing job market and workforce for the good of all Japanese citizens.13
This work has already begun in Osaka, a prefecture with a rapidly declining working age population. For job-seekers, the technology identifies unexplored career paths and aptitudes, suggesting step-by-step routes for graduates to find the jobs they desire.
For businesses, AI can generate effective hiring materials for a cheaper and more effective hiring process, and identify promising candidates based on the profiles of current employees. This ability to match people and jobs can combat regional labour shortages and unlock new potential in the workforce, with initial projects underway in eight prefectures: Osaka, Hiroshima, Oita, Miyagi, Aichi, Tochigi, Kanagawa, and Kagoshima. By focusing on key sectors such as employment, health, welfare, and sustainability, this collaboration aims to establish a national blueprint for economic and social resilience.
AI can grow regional economies outside Tokyo.
Tokyo is currently home to over 20% of Japan’s economic output, accounting for JPY 110 trillion (USD 720 billion), larger than the GDP of countries like Singapore and Thailand.14 The Japanese economy is highly reliant on Tokyo, as prefectures outside struggle with outward migration of workers and fewer agglomeration benefits.15 Prefectures outside Tokyo are also more reliant on agriculture and manufacturing, while Tokyo enjoys a more diversified economy rich in services.16
Despite regional economic imbalances between Tokyo and the rest of Japan, AI usage remains consistent across the country. There is little to no difference between current and projected usage between Tokyo and the rest of the country.
As AI augments Japan’s manufacturing and agriculture capabilities, this could help to reset the productivity balance outside of Tokyo.