By Anton Bridges and Makiko Yamazaki
INO, Japan (Reuters) – Over the past decade, Masato Shiota has brought his papermaking business back from the brink, paying off debt and buying machinery to automate some production. But he is struggling to find workers to keep output at full capacity.
“We have three machines but only two are running on any given day,” said Shiota, president of Wako Seishi, a tissue, disinfectant manufacturer in Ino, the smallest city on Japan’s four main islands known for its paper industry. Prepares wipes and toilet paper. .
“If we don’t have people we can’t make products and we can’t make a profit. We’ll go under. That’s the biggest problem for small and medium-sized companies.”
Shiota’s experiences and those of many other Inno business owners show how labor shortages are a growing threat to small companies that provide seven out of every 10 jobs in Japan. According to a 2023 study by the Recruit Works Institute, the country faces a shortage of 3.4 million workers by the end of this decade and 11 million by 2040.
In the first half of this year, a record 182 companies went out of business due to a lack of workers, up 66% from a year earlier, according to research firm Ticoku Databank. Overall bankruptcies look set to surpass 10,000 this year, the most since 2013, data from Tokyo Shoko Research showed this month.
While bankruptcies related to labor shortages are a small part of the total, the increase will trickle down to these companies’ suppliers and customers, potentially leading to a “series of bankruptcies or mergers,” according to one of the Tekoku databanks. According to researcher, Takayasu Otomo.
Japan raised borrowing costs for the first time in 17 years in March, signaling that the world’s fourth-largest economy has turned a corner after years of stagnation.
Yet Reuters interviews with 16 people in Inno, including business leaders, industry experts and officials, reveal challenges to Prime Minister Shigeru Ishiba’s efforts to revive rural economies facing an aging and shrinking population.
While Japan is allowing more underperforming businesses to fail, accounts suggest that labor shortages are threatening firms that are stronger, including those that have invested in automation and creative hiring. is
Japan’s Ministry of Economy, Trade and Industry did not respond to questions about the experiences of business owners in Inno.
‘Economic Metabolism’
Shiota, who also heads the local papermaking association, has 42 employees and saw demand for disinfectant wipes increase during the pandemic.
He has cut unprofitable products and, with government support, invested 80 million yen ($520,000) to automate his lines. But Shiota said he has little ability to pay workers more beyond a recent increase in the minimum wage, which will rise again next year.
Japan remains largely resistant to immigration, so some companies have bridged the labor gap by employing short-term workers from Vietnam and other Asian countries. But a weak yen makes it harder to attract foreign workers.
Some Japanese officials see bankruptcies triggered by labor shortages as an inevitable effect of “economic metabolism”—the elimination of less dynamic companies, allowing workers and capital to migrate to more productive ones.
Asked about the rise in these bankruptcies, a senior official, speaking on condition of anonymity to discuss a sensitive matter, said it was “natural” for this type of economic metabolism to occur.
The bankruptcy rate remains low compared to some countries, the official said, adding that if such bankruptcies did not occur, workers would be stuck in low-paying companies.
Learning to adapt
Located along the Nyodo River, Ino is known for traditional products such as “tosa dhoti” paper, which has been handmade for over 1,000 years and is used for calligraphy and “shoji” sliding doors.
Given its population of 20,000 and location off the beaten track, Inno’s papermakers have created places to escape. Toyo Tokushi, owned by the Moriki family, diversified into adult diapers in the 1970s, which now account for 70% of sales.
Facing staff shortages, the company is considering hiring graduates straight out of high school for the first time, said 32-year-old director Kei Moriki.
Still, he said he’s not sure the company can muster the resources to train workers with no work experience.
Old trophies from the annual softball tournament held by the local paper manufacturers’ association adorn the company’s headquarters. Toyo Tokushi hasn’t fielded a team in nearly 20 years, Moriki said, because his workforce has aged.
Elsewhere in Ino, there are less than a dozen izakaya pubs left in 2007 and only one fish shop, according to locals.
Ishiba has given few details on how he plans to revive rural areas, but promised to have a plan in place by early next year to raise the minimum wage to 42% by the end of the decade. is
Meanwhile, the government is pushing to help small and medium-sized enterprises raise prices so they can raise wages that lag behind the OECD average. Higher wages will also help smaller companies attract workers.
But in Inno, business owners say it’s not straightforward.
According to chief executive Hiromasa Hamada, Kashiki Seishi, a maker of washi paper, sources everything from local farmers. But since 2017 the six-person company has also relied on volunteers from a program that allows people to work on farms in exchange for room and board.
“I don’t think it’s healthy for a business to rely on volunteers,” said Hamada, 44, a seventh-generation papermaker.
But he seems to have little choice, as he has fewer farmers in the vicinity to collect the wood and other materials he needs.
In 10 years, he said, “there may be no one left in the mountains”.
