May 5, 2006

Wave of retiring workers could force big changes

TOYOHASHI, Japan — No one knows spindles like Katsuya Hyodo.

For more than three decades, the diminutive factory worker, armed with only a junior high school education, has studied and designed the whirring cylinders at the heart of automotive machine tools. "I like spindles," Hyodo says. "There are so many different kinds."

His expertise and passion are priceless to a small company like his employer, machine tool manufacturer Nishijimax (annual revenue: $30 million). Just one problem: Katsuya is 72 years old. That's why he spends Sunday afternoons at home transcribing everything he knows about spindles into his computer. He wants to make sure his wisdom reaches the next generation. "I am not just doing it for myself," he says.

All over Japan, companies are bracing for a demographic wave that will wash away many of their most experienced employees. The Japanese call it their "2007 problem." Beginning next year, members of what Japan considers its baby boom generation will start hitting 60 and dropping out of the workforce. Some might postpone retirement, but they can't work forever. Plunging birth rates mean there won't be nearly enough young people to replace them.

"We face a big problem," says Shigeyoshi Yoshida, executive director of the Japan Aging Research Center. "Over the next three or four years, 10 million people will retire."

Japan is starting to lose workers just when it needs them most. After more than a decade of stagnation, the Japanese economy is growing again. The unemployment rate was at an eight-year low of 4.1% in March. Employers began complaining about a labor shortage early last year, the Bank of Japan says, and it's bound to get worse. Japan's population fell in 2005 for the first time, to 126.1 million, and is expected to shrink by nearly 38 million by 2050.

Nowhere is the labor market tighter than here in central Japan's Aichi Prefecture (state), a magnet for auto suppliers drawn to the area around Toyota City. In February, there were 1.72 job offers for every job seeker in Aichi — the highest ratio in Japan, according to the Ministry of Health, Labor and Welfare.

The problem isn't just a shortage of bodies, notes Jesper Koll, chief economist at Merrill Lynch Japan Securities: It's also a mismatch between what employers need — engineers, nurses, retail clerks and skilled factory hands — and the workers that are available, particularly construction workers idle since the government started cutting pork-barrel public works spending several years ago. For the first time, Koll says, fiftysomething Japanese men, including ex-construction workers, are working behind cash registers, ringing up sales in convenience stores — service jobs that would once have been considered beneath their dignity.

Skilled labor is in especially short supply. Already, the country needs 170,000 software engineers, says Shiro Kaizuka, CEO of the Tokyo job-placement firm Fullcast Technology. Companies are snapping up new college grads — in fields such as engineering and finance — as fast as they can. "You want to be reborn as a 22- or 23-year-old Japanese," Koll says.

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