Japanese businesses are being killed off by labor shortages. Korea could be next.

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Japanese businesses are being killed off by labor shortages. Korea could be next.

Published: 15 May. 2025, 11:05 Updated: 15 May. 2025, 15:51

Audio report: written by reporters, read by AI

Job seekers attend a job fair for middle-sized companies held at Coex in Gangnam District, southern Seoul, on April 21. [YONHAP]

As labor shortages drive a record number of small businesses into bankruptcy in Japan, experts warn that Korea — facing similar demographic pressures and work force mismatches — could be on the brink of the same crisis without urgent labor market and immigration reforms.

In January, Hakujukai, a company operating a nursing home in Fukuoka, was ordered into bankruptcy by a local court. The company cited soaring labor costs and chronic staff shortages as the main reasons for halting operations.

This type of collapse is categorized in Japan as a "labor shortage bankruptcy," referring to businesses forced to shut down due to hiring difficulties or unsustainable wage increases.

As a country that has experienced rapid population aging and low birthrates ahead of others, Japan has seen a record number of companies go bankrupt for such reasons for two consecutive years — a trend that is raising serious social concerns.

Experts warn that Korea, facing a similarly severe mismatch between labor supply and small business demand, could soon follow in Japan’s footsteps.

A total of 342 companies in Japan went bankrupt last year due to work force shortages — 1.3 times higher than the previous year and the most ever recorded, according to surveys by credit research firm Teikoku Databank and the Nihon Keizai Shimbun. The largest spike was in cases involving hiring difficulties, which nearly doubled to 114 cases.

Elderly citizens hang out in a park in Daeju on April 9. [NEWS1]

“Given the continued difficulty in securing workers, labor shortage bankruptcies are expected to remain high,” Teikoku Databank said in a grim outlook.

By industry, the hardest hit were labor-intensive sectors: 99 cases in construction, 46 in logistics and 16 in food service.

A Bank of Japan survey in April showed the country’s employment diffusion index at -37, the lowest in 33 years. A negative index indicates a growing number of businesses reporting labor shortages, and the current level suggests the issue has become a structural problem.

As labor becomes scarcer, wages are rising rapidly. According to the first round of spring wage negotiations — called shunto in Japanese — released in March by the Japanese Trade Union Confederation, average wage increases hit 5.5 percent for the second consecutive year.

Office workers at a company in downtown Seoul are seen working late on Feb. 28, 2018. [YONHAP]

Among labor unions at small- and medium-sized enterprises (SMEs) with fewer than 300 members, the wage hike was 5.1 percent — the first time the rate has surpassed 5 percent in 33 years.

A recent report by the Korea Trade-Investment Promotion Agency’s Tokyo trade office attributed the higher wages to “urgent talent needs among small businesses with limited financial resources compared to large corporations.” Many had no choice but to offer substantial pay hikes to stay competitive.

Japan’s labor crisis is largely attributed to the retirement of the baby-boomer “Dankai generation,” born between 1947 to 1949, and its deepening demographic decline.

Korea faces similar challenges, with its second baby-boomer generation, born between 1964 to 1974, beginning to retire this year. Coupled with the world’s fastest declining birthrate, Korea could be heading down a similar path.

Job seekers look around booths at a job fair held at Yeongdeungpo Art Hall in Yeongdeungpo District, western Seoul, on April 30. [NEWS1]

Statistics show that Korea’s economically active population will begin to shrink from 2030, and by 2033, nearly half, or 48.4 percent, will be aged 55 or older. The Korea Employment Information Service estimates that, assuming 1.9 percent economic growth, Korea will face a shortage of 821,000 workers by 2033.

This means that Korea will soon become a country with a labor supply shortage.

“Small and medium-sized businesses in Korea are already unable to secure enough workers due to job mismatch,” said Kim Yu-bin, a researcher at the Korea Labor Institute. “If the population decline becomes full-blown in this situation, the impact could be greater than that of Japan.”

Labor shortages are already acute among Korean small businesses. The manpower shortage rate for small firms in 2023 stood at 3.2 percent — more than double that of large companies at 1.6 percent, according to the Ministry of Employment and Labor.

Job seekers fill out resumes at a job fair held at Yeongdeungpo Art Hall in Yeongdeungpo District, western Seoul, on April 30. [NEWS1]

A survey by the Korea Small Business Institute in March that surveyed 589 small businesses found that 28.9 percent of SMEs reported labor shortages.

The Organisation for Economic Cooperation and Development has also flagged Korea as a country experiencing labor market imbalances. In a report released in March, it noted that while Korea's overall labor supply and demand were balanced in recent years, “mismatches by sector and occupation have been increasing.”

Experts stress the urgency of addressing these issues by fixing the job mismatch and improving immigration policy.

“Like Japan, Korea will first see job mismatches in low-wage and labor-intensive sectors,” said Kim Sung-hee, a professor at Korea University’s Graduate School of Labor Studies. “But unlike Japan, Korea has already outsourced most of these jobs to foreign labor, especially ethnic Koreans from China.”

Students discuss job prospects with company representatives at a job fair at Yeungnam University in Gyeongsan, North Gyeongsang, on May 8. [NEWS1]

“Korea’s current immigration policy is based on short-term stays, where workers are expected to leave after a few years,” he added. “To secure labor long-term, Korea must adopt a more inclusive immigration system that allows people to settle and contribute to society.”

“The shrinking work force due to demographic decline is a foreseen future,” Kim Yu-bin from the Korea Labor Institute said. “Urgent policy responses are needed to connect young and middle-aged workers with jobs at small and medium enterprises and to close the job mismatch.”

Translated from the JoongAng Ilbo using generative AI and edited by Korea JoongAng Daily staff.
BY KIM YEON-JOO [[email protected]]