Endogenous Migration and the Macroeconomic Impact of Foreign Workers in Japan

This paper develops a multi-region overlapping generations model with endogenous migration to quantify the macroeconomic and fiscal effects of foreign workers in aging Japan. Migration decisions are modeled explicitly, driven by cross-country differences in wages, demographics, and fiscal systems across Japan and the countries from which the migrants originate. The calibrated model replicates the sharp rise in Japan’s foreign workforce over the past decade and projects that their share will peak in the 2040s before declining as demographic and wage trends in source countries evolve. Foreign workers modestly mitigate the decline in labor supply and output and ease fiscal pressures, though their contribution remains partial. The findings highlight the importance of incorporating endogenous migration in assessments of long-run fiscal sustainability in aging economies.