A general equilibrium analysis of the Japanese immigration policy in light of Japan's aging population

The purpose of this paper is to examine the economic impact of migrant workers in Japan, who have been dramatically increased since late 1980s. The analysis, using a general equilibrium model developed in this paper, reveals the quadruple impact of the admission of migrant workers on the welfare of the host country which has often been neglected in the orthodox theory: (i) cheaper foreign labor effect; (ii) trade barrier effect; (iii) nontradable income effect; and (iv) nontradable consumption effect.  Moreover, it is shown that, if Japan is to benefit from admitting foreign labor, the scale of admission should be large.

After the theoretical analysis, we examine the impact of the admission of migrant workers empirically, by calibrating the model.  The calibration reveals that if Japan is to benefit from admitting foreign labor, the scale of admission should be very large (i.e., more than ten million, or 17 percent of total labor force in Japan).

Using the general equilibrium model, we also investigate the difference between the impact of the admission of temporary guest workers and that of permanent immigrant. We find the following three points: (i) In Japan, most of migrant workers are characterized as temporary guest workers rather than permanent migrants; (ii) admission of guest workers has negative economic impact on host country, unless the scale of admission is very large; (iii) admission of permanent migrants is economically preferable than that of guest workers for host country.

At the end of the paper, merit and demerit of immigration are compared with those of other alternatives, such as an increase of female participation in the labor market, as measures to cope with possible labor shortage resulting from aging population in Japan. We find that the increased participation of women has much bigger impact than the admission of migrant workers.