With a population of 125 million, Japan is one of the most populous OECD countries. Yet unlike most of its peers, Japan’s population is shrinking. Between 2000 to 2021, the average population across Japan’s 47 TL3 regions declined by 0.32% per year, or by 0.05% when weighted by population size. In contrast, TL3 regiones grew on average by 0.45% per year. Japan’s decline has been especially acute in non-metropolitan regions: those close to mid-sized cities lost 0.64% annually and those close to small cities 0.61%. By contrast non-metropolitan regions in other OECD countries experienced growth overall during the same period: 0.36% in regions close to mid-sized cities and 0.38% in regions close to small cities. Nevertheless, some countries also demonstrated shrinking trends in non-metropolitan regions. For example, Hungary, Germany, Portugal and Poland all observed a decline in non-metropolitan regions close to mid-sized cities, while population also declined in non-metropolitan regions close to small cities in countries like Lithuania, Latvia, Estonia, Hungary, Germany and Poland.
In addition to shrinking, rural places also face the challenge of an ageing workforce. Rural areas have a lower average share of younger workers (15-34 years old) and a higher share of older workers (45-64 years old) than urban areas. The number of older workers as a share of the working age labour force, has also increased in rural areas in Japan, from 49% in 2010 to 53% in 2020. In this context, the Japanese government is developing strategies for economic development and service provision in non-metropolitan regions to address current and future demographic challenges.
Innovation adoption can provide one solution to address labour and skills shortages in regions with declining and ageing populations. The generation of new ways of delivering public services can also help address challenges in providing service delivery, in particular through locally led solutions. In this respect, Japan has a relative advantage as it is one of the most innovative OECD countries in high-tech innovation. The solution could, therefore, in part, focus on the diffusion and adoption of these innovations to rural areas. However, currently, innovation is densely concentrated in metropolitan regions, and entrepreneurs (the drivers of firm-based innovation) are starting firms at lower rates. As such, firm-based innovation, which has the possibility of responding to labour and skills shortages, may be falling short. Furthermore, this is only part of the solution, as focusing solely on the uptake of high-tech innovation overlooks other sources of innovation that are crucial for rural places, including entrepreneurship, social innovation, public sector innovation, innovation in delivering services and innovations in the use of land.
This report draws on lessons learned from similar studies in other OECD countries conducted in Canada, the United States, Switzerland and Scotland (UK). Each report included case study visits to rural places within each country, qualitative analysis, policy analysis and a focus on special issues. The current report provides a diagnosis of rural innovation in Japan as well as policy recommendations to support it, with a particular emphasis on innovation in land-use management.