Much of the productivity headwinds can be attributable to age demographics.
An Aging Population
Japan is aging rapidly and its population demographic profile leads the G7. Governor Ueda showed how Japanese total population peaked in 2008, but working population peaked in 1995.
A falling labour supply should push up wages, but the popping of the bubble in 1990 saw disinflation and outright deflation, which had a depressing effect on wage growth.
As the population aged, it pulled people into low-productivity care-related jobs. We have seen a similar pattern in U.S. nonfarm payroll growth (blue bars). Most of the growth in the last three years is coming from the health services category. Arguably, some of that effect is cyclical and attributable to the environment of weak jobs growth, but the recent trend is nevertheless concerning.
The Immigration Effect
Trump’s immigration crackdown will have an effect on labour supply. We are already seeing the effects in the appearance of a data anomaly.
An analysis of the jump in native-born population from the Household Survey shows that, if we normalize the native-born civilian labour force as a percentage of the native-born population (green line, right scale), the data anomaly disappears.
Of course, not all foreign-born workers are illegal, though green card holders can still be deported if they are convicted of a crime. Still, the U.S. saw a 4% shift from native to foreign born workers between 2003 and 2023, indicating that the U.S. is increasingly relying on immigrant workers.
Why does this all matter? The Congressional Budget Office projects that, in the absence of immigration, the U.S. population would peak in 2033 and start to fall.
If the U.S. native-born population naturally peaks in 2033, what does that say about the demographic profile of the working population? The age demographic of the immigrants, legal and illegal, will be younger than native-born Americans. There aren’t many 60- and 70-year-olds sneaking across the border as a percentage of illegal migrants. By comparison, the aging Baby Boomers are the growth in the U.S. population demographic.
Indeed, growth in civilian labour force has been flat in 2025.
As much as U.S. immigration policy is intended to renew domestic growth, and in particular manufacturing employment growth, its singular focus on deportation of illegals can backfire. Take, as an example, the WSJ account of the recent ICE raid on a Hyundai plant in Georgia [emphasis added]:
U.S. law-enforcement officials carried out their largest ever single-site immigration raid at the construction site of an electric-vehicle battery factory near Savannah, Ga. The factory is a joint venture between Hyundai and fellow South Korean firm LG Energy Solution…Of the 475 people who were detained in the raid, around 300 were South Korean citizens, according to South Korea’s foreign ministry…
The South Korean nationals were largely given visas suitable for training purposes, such as the B-1 visa, and many there were working as instructors, according to a South Korean government official.
This looks like a story where a company investing in the U.S. was trying to speed up the process and not comply with every bureaucratic hurdle that served no legitimate purpose. It’s the kind of thing companies do all the time, in the sense that if you followed every law to the exact letter you’d never get anything done. Government usually looks the other way.
But the administration is driven by animus towards foreigners, so in this case they decided to chain people up, treat them as criminals, and record the whole thing. Again, these were people from an allied country coming in as part of a project that invested large sums of money into American manufacturing.
Stagflation and Stagnant Productivity
In the absence of foreign workers, the U.S. demographic outlook brings us back to the Japanese experience. Japan’s population peaked in 2008, but working age population peaked in 1995. Total factor productivity has been flat since 1990. This data analysis suggests that U.S. working age population is either peaking or will peak soon in the absence of immigration.
In conclusion, the U.S. population will peak in about 2033 in the absence of immigration, and working age population would be peaking about now or in the near future. The Japanese experience of an aging population saw total factor productivity flatten since the top of Japan’s bubble in 1990. More recently, Japan saw upward pressure in wages as weak population growth collided with a tight labour market.
In the U.S., the combination of a weak labour supply and rising fiscal deficits is conducive to stagflation, or the combination of rising inflation from wage cost-push and subpar productivity growth.
In light of how Japan coped with a declining population, investors would have to be very bullish on the effects of AI adoption to project significant gains in productivity beyond trend growth in the face of the U.S. pivot in immigration policy.
Japanese productivity PER PERSON is going up better than other countries. That is why output is staying up with declining population.
The Japan with the world’s oldest demographics is getting old…pun intended. They have been talking about it for over 30 years. Well , old people spend less and stimulate the economy less than say 30 year olds having kids.
The only good thing about the immigration policy is that in a little more than 3 years it may change, provided people still want to come here. Which they should because there are much less desirable places in the world.
Japan has always been reluctant toward immigration, but this also lessens the chance of innovators moving in. My impression is that immigrants in the aggregate are more industrious than the incumbent population. I say this because to move to a strange country where you have a language barrier, strange customs, and likely don’t have much money or the academic credits to get those prime jobs is a real challenge and takes courage, lots of ambition and optimism along with a willingness to work, and take risks etc etc. Cut off immigration and you don’t get that talent. You deal with Dalton’s regression to the mean in your incumbent population.
Hats off to those people, the second generation is the more successful one when mom and pop work long hours in a small business and have kids who grow up here and have good work ethics. This of course is my opinion and observations.
Another factor for Japan is energy. No cheap abundant energy which make is harder to be competitive. That for many years Japan and Germany could not spend billions on the military no doubt helped them
Closing borders to immigration is not just the US and Japan though. It’s not a good idea, but if the population feels threatened by immigration they will vote against it, and so we are the architects of our own decline.
I think it is not about not wanting immigrants. The type of immigrants is the key consideration. France and UK have a lot of immigrants but that fact did not help the two countries. US also has tons of immigrants on welfare roll, but US aslo has a very educated group of immigrants who successfully created business. It is the abuse of immigration system which created many problems and made gov planning ineffective.
Comments like this sound like former president Ronald Reagan’s “welfare queens” statement. A simple AI search produced the following:
The statement “US also has tons of immigrants on welfare roll” is a complex issue with data that can be interpreted in different ways, leading to conflicting conclusions. It’s not a straightforward “true” or “false” and depends heavily on how you define “immigrants” and “welfare.”
Here’s a breakdown of the key findings from various studies and reports:
1. Immigrant vs. Native-Born Per Capita Use:
Several studies, including those from the Cato Institute, have found that immigrants, on a per capita basis, consume less welfare and entitlement benefits than native-born Americans. This is often attributed to several factors, including the fact that many immigrants are of working age and have less access to certain benefits.
2. Household vs. Individual Use:
This is a critical distinction and often the source of conflicting claims.
Household-level data often shows that households headed by immigrants have a higher rate of welfare use compared to households headed by native-born Americans.
However, a deeper look reveals that the welfare is often being received by U.S.-born children within the immigrant-headed household. Illegal immigrants and many legal immigrants are ineligible for most federal benefits themselves, but their U.S.-born children (who are citizens) are eligible.
3. Eligibility Restrictions:
Federal law, specifically the Personal Responsibility and Work Opportunity Act of 1996 (PRWORA), places significant restrictions on immigrant eligibility for public benefits.
Unauthorized immigrants are generally ineligible for almost all federal public benefits, with very limited exceptions like emergency Medicaid.
Legal permanent residents (green card holders) often face a five-year waiting period before they can become eligible for many federal means-tested programs like Medicaid and SNAP (food stamps).
Refugees and asylees are typically exempt from the five-year waiting period.
4. The Role of Naturalized Citizens:
Naturalized immigrants, who are now U.S. citizens, are a different group. Some studies show that naturalized immigrants, particularly those who are older, consume more welfare benefits than native-born Americans. This is primarily due to their higher use of entitlement programs like Social Security and Medicare, which they become eligible for after meeting the necessary work and residency requirements.
In summary:
The claim is misleading if it’s meant to suggest that immigrants are a drain on the welfare system. Per individual, immigrants use fewer benefits than native-born citizens. However, if the claim is referring to households, there is evidence that immigrant-headed households have a higher rate of welfare use, largely because they contain U.S.-born children who are eligible for benefits. The overall picture is nuanced, and the data depends on the specific population group and benefit programs being analyzed.