Part II Economic and Social Change and
Diversification of Working Styles

Chapter 1

Economic and Employment Trends and Diversification of Working Styles

Section 1

Overview of Medium- to Long-Term Economic and Employment Trends

Japanese economic growth fell dramatically in the 1990s and deflation has been continued. In the labour market, changes were seen in the supply and demand of labour. The former was affected by an aging society producing fewer children, a larger share of female labour force in the total labour force, increase of workers with higher academic background, and the latter owing to the changing industrial and occupational structures, as well as the progress of the information technology. In terms of job creation and loss, the number of employed persons decreased between 1996 and 2001 due to a lessened increase in new and existing establishments and a decrease in employment due to businesses closing.
The real labour productivity increase (annual rate) in Japan dropped from 3.9% in the 1980s to 1.9% in the 1990s due to the lowered contribution of capital stock and the total factor productivity, including advances in technology. The narrower decline in manufacturing industry productivity, as compared to all industries, is a result of a continuing large contribution to the increase in total factor productivity.
The globalizing economy promoted an international specialization and increased the overseas production ratio, which possibly led to the loss of employment in the domestic manufacturing industry.

Overall Economic Trends
The real economic growth rate in Japan has continued to decrease following the collapse of the bubble economy in the 1990s (Figure 11 i)). The nominal growth rate remained weak during this gradual deflation, and has resulted in negative growth every year since 1998, apart from 2000. The recent economy is characterized by a continuing fall in prices or gradual deflation (Figure 11 ii)).

Changes in Supply and Demand of Labour
The changes in the supply of labour include: (1) a decrease in the labour force (expected to drop from 66.89 million in 2002 to 63 million in 2025) and the higher share of workers force aged 60 or older in the labour force (expected to increase to 19.7% in 2025, from 8.8% in 1970 and 13.9% in 2002); (2) a further increase in labour force participation rate of females (and a greater share in the labour force), and (3) an increasing share of workers with a higher academic background.
The changes in the demand for labour include: (1) increasing changes in the employment structure by industry and occupation due to the long-term increase in the tertiary industry share as well as the increasing numbers of white-collar workers, and (2) changes in the job quality of white-collar resulting from the progress of information technology, increased non-regular employment and a diversification of working styles.

Job Creation and Loss
Job creation and loss do affect the demand for employment. New establishments contributed less to the increase in numbers of employed persons following the collapse of the bubble economy. Between 1996 and 2001, existing establishments contributed little to the increase；discontinued establishments contributed greatly to the decrease； and new establishments contributed little to the increase. This　resulted decrease in the total number of employed persons for the first time (Figure 12).
When compared by industry in 1991 and 2001, employment growth in existing establishments became negative due to the decline of job creation rate and remarkable increase in job loss rate. In the service industry, however, the job creation and employment increase rates are higher than in 1991 in the social welfare and medical/health care services.

Trends in Labour Productivity
The real labour productivity increase per hour (annual rate) in Japan declined from 3.9% in the 1980s to 1.9% in the 1990s due to a shrinking contribution derived from increases by capital stock and technological advancement. In terms of manufacturing industry, the shrinkage of the real labour productivity increase was small when compared to all industries (dropping from 4.2% in the 1980s to 3.2% in the 1990s), owing to large increase in total factor productivity (Figure 13).
The real labour productivity per hour and the unit labour cost in the manufacturing industry in 1999, were both mid-ranking among advanced countries. In the 1990s, the increase in real labour productivity achieved mid-ranking, but the increase in unit labour costs were higher than other advanced countries due to the noticeable appreciation of the yen during the first half of the 1990s (Table 14).

Employment Affected by Changing Trade Structure and Increased Overseas Production
Japan's major export items are fabricated products including machinery, and imports are mostly products accounting for more than 60% of the whole. Additionally, the shares of trade with East Asian countries are growing. These facts can be explained as a result of the international specialization through which Japanese industries expand their overseas production and imports of labour-intensive or low value-added products, in order to cope with the rising value of yen following the Plaza Accord in 1985, and the shifting of focus on domestic production to high value-added products for domestic and foreign markets. While the automobile and capital goods parts remained competitive, the home electric appliances and textile products lost their international competitiveness, resulting in increased overseas investment for the purpose of reducing manufacturing cost from the second half of the 1990s. The increased overseas production also resulted in increased reimporting to Japan.
Progress in the international specialization and increasing overseas production, as mentioned above, may have led to the decrease in employed persons working for Japanese manufacturers. One estimate of this is that: (1) when compared between 1990 and 2000, about 0.75 million jobs (5.4% of worker in 1990) appear to have been lost due to the changing trade structure where the import rate increased for the majority of industries, and the lower growth of export, as compared to import (Table 15), and (2) about 0.6 million jobs appear to have been lost in a fiscal year of 2000 due to overseas production in the manufacturing industry (Table 16).

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