Japan’s population contracted by half a million last year, underscoring the country’s mounting challenges in tackling labor shortages and financing its social security system with a shrinking tax base.

The overall population dropped by 550,000 from the previous year to 123.8 million in 2024, extending the streak of declines to 14 years, according to data as of October 2024 released Monday by the Ministry of Internal Affairs and Communications. The number of Japanese nationals alone declined by 898,000, the steepest fall since comparable records began in 1950.

The data serve as another reminder of Japan’s bleak demographic outlook, raising alarms over the sustainability of its social welfare system as the number of contributors dwindles. The number of people aged 15 to 64—the core of the labor force—fell by 224,000 to 73.7 million, intensifying the fiscal strain on a nation already carrying the highest debt-to-GDP ratio among developed economies.

Data also show that Japan’s child population declined by 343,000 to 13.8 million, or a record-low 11.2% of the total. That drop follows labor ministry figures released in February that showed births fell to a new historic low, amplifying concerns over the long-term future of domestic industries amid a dwindling supply of new workers.

Japan’s unemployment rate is 2.4%, the lowest among OECD countries, and has stayed below 3% for four years. By 2040, Japan is projected to face a labor shortfall of 11 million, according to an estimate by Recruit Works Institute.

Partially offsetting the overall population shortfall, the number of foreign residents rose for the third straight year, increasing by 342,000 from a year earlier, the latest data show.

Japan’s population woes mirror broader global patterns. South Korea’s fertility rate ticked up slightly last year for the first time in nine years, but at just 0.75, it remains well below the replacement rate. In France, the drop in births accelerated in 2023 to the fastest pace in half a century, while China’s population has declined for three consecutive years.

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Europe’s ultra-high-net-worth families are moving fast to get their affairs in order ahead of the Great Wealth Transfer, but the biggest challenge to handing over their fortunes is an apparent lack of available workers keen to take a pay cut to manage their billions.

A report by HSBC Global Private Banking and Campden Wealth looked at the state of European family offices, surveying 101 offices that accounted for $136 billion in combined wealth. Ensuring strong returns and learning how to roll out generative AI were key concerns from those families.

The biggest obstacle, however, is finding suitable people to manage their fortunes. 

More than a third (36%) of wealthy respondents to the survey said there was a limited pool of available talent with the appropriate personal skills to manage their estates. Just under a third (32%) said they struggled to find leaders with suitable interpersonal skills.

Operating a family office can be a lucrative gig. The research shows the best-paid CEOs at family offices rake in $500,000 (€476,000) a year, though the average is $288,000 (€274,600). While attractive, the figures don’t compare favorably with other investment jobs at a similar level. Executive search firm Heidrick & Struggles found the average salary for private equity-backed CEOs was $447,000 (€426,000).

Meanwhile, the lowest-paid family office CEOs only earn around $120,000 (€114,000) a year.

Billionaires look outside the family

Looking deeper into the figures, families with more than a billion dollars in assets pay their CEOs on average just $370,000 (€353,000) a year in base salary, with an 88% bonus. 

The baseline figure represents less than 0.037% of those families’ fortunes. For family members, the figure is lower, as it is for CEOs of family offices worth less than $500 million.

In a bid to attract talent, the report says, family offices are turning to added incentives to get the best talent on board. Most offer a discretionary performance bonus, while a minority co-investment opportunities or a share of generated profits.

Family offices have historically used prestige to recruit leaders, who are also lured in by their smaller setup. They are typically in the single digits of employees, allowing each worker to have a defined impact. They also tended to attract heirs keen to carry their legacy.

However, there are fears these factors don’t have the same pull for non-family members as they once did. Meanwhile, younger generations are increasingly less enthralled with retaining their parents’ legacy and more interested in building their own.

One U.K. founder of a family office told the authors: “I think that there’s going to be a shortage of people to run family offices. The family members who were born in the 1960s and have been running the family office for 15 years or 20 years are retiring. 

“Many next gens will want to do their own thing away from the family office and recruitment of staff will become progressively harder. Who is going to fill the gap? Family offices will be forced to bring in more professional staff from financial institutions and their culture will change.”

One family office CEO, however, told the authors that compliance and regulatory overload at larger investment firms was making more investment managers consider moving over to a smaller family office setup. 

The attractiveness of hiring a non-family member to manage a family office is growing as baby boomers hand their companies and fortunes over to the next generation. This can save a grisly succession battle among offspring, which increasingly involves multiple siblings and even cousins descending from the same founder.

The CEO of a U.K. family office told the authors: “Among our next gens are seven cousins, the offspring of three siblings. All or some will go on to work in the family business or family office. I’m not sure how well they will be able to work together if there are effectively seven family members competing for the top job.”

Editor’s note: A version of this article first appeared on Fortune.com on December 5, 2024.

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