A recent survey by Tokyo Shoko Research shows that in the first half of the 2024 fiscal year (April to September), the number of companies in Japan that went bankrupt due to labor shortages caused by factors such as employee turnover and recruitment difficulties reached 163, a record high. This figure not only surpasses the 135 companies recorded in the first half of the 2023 fiscal year but is also growing at an alarming rate, potentially exceeding the 313 bankruptcies for the entire 2023 fiscal year.

In this survey, which began in fiscal year 2013, the number of “bankruptcies due to labor shortages” from April to September has set historical highs for two consecutive years. Behind this trend is the increased market liquidity brought about by the upward trend in corporate wages. The research company predicts that the number of similar bankruptcies will remain high in the future, mainly concentrated among small businesses with severe labor conditions.

Looking at the industry distribution, the construction and logistics industries remain the most severely affected. From April to September 2024, 55 construction companies went bankrupt, an increase of 4 cases compared to the same period last year; 19 logistics companies went bankrupt, the same as in the first half of fiscal 2023. These two industries alone accounted for nearly half of all labor shortage bankruptcy cases across all industries in the first half of 2024. Notably, the restaurant industry also saw a surge in such bankruptcies, increasing from 2 cases in the previous fiscal year to 9 cases.

Across all types of industries, small businesses with fewer than 10 employees accounted for 80% of labor shortage bankruptcy cases, totaling 134 cases. This data highlights the vulnerability of small businesses when facing labor shortage issues.

The construction and logistics industries are also facing the so-called “2024 problem,” where they will face even more severe labor shortages due to tightened restrictions on overtime for truck drivers. Another survey by Tokyo Shoko Research confirms this, showing that about 70% of companies in these two industries are facing worker shortages. This percentage is about 20% higher than the 51.5% for all industries, and there are no signs of decline in the short term.

Japan’s labor shortage problem began to emerge during and after the COVID-19 pandemic, severely impacting business operations. This issue not only affects the normal operations of companies but has also led to an increase in the number of bankruptcies, becoming a significant challenge facing the Japanese economy.

Faced with this severe situation, the Japanese government has also taken a series of measures. On October 4, newly appointed Prime Minister Shintaro Ishiba, in his inaugural speech to both houses of parliament, specifically mentioned wage increases and labor shortages. He promised to achieve wage increases exceeding inflation by increasing the productivity, added value, and income of each worker, thus creating a virtuous cycle of wage increases and labor shortages. Ishiba also promised to create a better environment for wage increases in small and medium-sized enterprises, demonstrating the government’s emphasis on solving this problem.

However, solving the problems of labor shortages and company bankruptcies is no easy task. Kotaro Asahi, Deputy Director of the Information Management Department at Tokyo Shoko Research, pointed out the difficulties. He stated, “If the government asks large companies to raise wages, they can tap into internal reserves, but small and medium-sized enterprises won’t do that.” This means that small and medium-sized enterprises face greater challenges in coping with wage increase pressures.

Asahi further pointed out that the key to achieving wage increases while ensuring sufficient employees “depends on whether companies can obtain substantial profits in their core businesses.” He believes that “if companies can establish a business model that earns substantial profits through their main business, then as sales and profits rise, they can raise wages and attract employees.” Based on this view, he called on the government to “support companies that can obtain substantial profits through their core businesses, rather than arbitrarily distributing subsidies.”

This suggestion reflects a possible direction for solving the labor shortage problem, namely achieving a virtuous cycle of wage growth and talent attraction by enhancing the core competitiveness and profitability of enterprises. However, how to help small and medium-sized enterprises improve their core competitiveness in the short term while addressing the current labor shortage crisis remains a difficult problem that requires joint efforts from the government, businesses, and all sectors of society.

The current labor shortage and company bankruptcy problems facing Japan not only affect the survival of individual companies but also have far-reaching impacts on the entire economic structure and social development. How to maintain economic vitality while solving labor shortage problems and balancing the development of large enterprises and small and medium-sized enterprises will be a long-term challenge for the Japanese government and society.

Key points:

• In the first half of fiscal year 2024, the number of companies in Japan that went bankrupt due to labor shortages reached 163, a record high.
• The construction and logistics industries are the most severely affected, with small businesses accounting for the majority of bankruptcy cases.
• The Japanese government has promised to take measures to increase worker productivity and income to address the labor shortage problem.
• Experts suggest that the government should support companies that can obtain substantial profits through their core businesses, rather than simply distributing subsidies.
• Solving labor shortage and company bankruptcy problems requires joint efforts from the government, businesses, and all sectors of society.