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Can Guest Workers Solve Japan'S Fiscal Problems?

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  • Selahattin İmrohoroğlu
  • Sagiri Kitao
  • Tomoaki Yamada

Abstract

The labor force in Japan is projected to fall from about 64 million in 2014 to nearly 20 million in 2100. In addition, large increases in aging related public expenditures are projected which would require unprecedented fiscal adjustments to achieve sustainability under current policies. In this paper, we develop an overlapping generations model calibrated to micro and macro data in Japan and conduct experiments with a variety of guest worker and immigration programs under different assumptions on factor prices and labor productivities. Against a baseline general equilibrium transition which relies on a consumption tax to achieve fiscal sustainability, we compute alternative transitions with guest worker programs that bring in annual flows of foreign born workers residing in Japan for 10 years with the share of guest workers in total employment in a range between 4% and 16%. Depending on the size and skill distribution of guest workers, these programs significantly mitigate Japan's fiscal imbalance problem with a relatively manageable and temporary increase in the consumption tax rate.
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Suggested Citation

  • Selahattin İmrohoroğlu & Sagiri Kitao & Tomoaki Yamada, 2017. "Can Guest Workers Solve Japan'S Fiscal Problems?," Economic Inquiry, Western Economic Association International, vol. 55(3), pages 1287-1307, July.
  • Handle: RePEc:bla:ecinqu:v:55:y:2017:i:3:p:1287-1307
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    File URL: http://hdl.handle.net/10.1111/ecin.12439
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    References listed on IDEAS

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    Cited by:

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    2. Sagiri Kitao, 2018. "Policy Uncertainty and Cost of Delaying Reform: The Case of Aging Japan," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 27, pages 81-100, January.
    3. Okamoto, Akira, 2022. "Intergenerational earnings mobility and demographic dynamics: Welfare analysis of an aging Japan," Economic Analysis and Policy, Elsevier, vol. 74(C), pages 76-104.
    4. Busch, Christopher & Krueger, Dirk & Ludwig, Alexander & Popova, Irina & Iftikhar, Zainab, 2020. "Should Germany have built a new wall? Macroeconomic lessons from the 2015-18 refugee wave," Journal of Monetary Economics, Elsevier, vol. 113(C), pages 28-55.
    5. Okamoto, Akira, 2021. "Immigration policy and demographic dynamics: Welfare analysis of an aging Japan," Journal of the Japanese and International Economies, Elsevier, vol. 62(C).
    6. Hur, Jinwook, 2020. "Immigration to Korea: A Fiscal Boon or Burden?," KDI Journal of Economic Policy, Korea Development Institute (KDI), vol. 42(4), pages 27-58.
    7. Florio, Erminia & Kharazi, Aicha, 2022. "Curtailment of Economic Activity and Labor Inequalities," GLO Discussion Paper Series 1166, Global Labor Organization (GLO).
    8. İmrohoroğlu, Selahattin & Kitao, Sagiri & Yamada, Tomoaki, 2019. "Fiscal sustainability in Japan: What to tackle?," The Journal of the Economics of Ageing, Elsevier, vol. 14(C).

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