Part I
Trends and Features of the Labour Economy in 1998

Chapter 1
Trends in Employment and Unemployment

Features of the Employment and Unemployment Situation in 1998

    Employment and unemployment conditions rapidly deteriorated in 1998. This reflected the fact that the Japanese economy, following a recovery after the collapse of the bubble economy, peaked in March of 1997 and then again retreated. Real gross domestic product (GDP) fell for five periods consecutively for the first time since the end of World War II. In this and other respects, the Japanese economy felt the continuing impact of problems equivalent to those of the first oil crisis. The employment and unemployment situation has four features:

  1. The ratio of active job openings to applicants fell to its lowest level ever, and the unemployment rate rose by a greater margin than ever before. In these and other respects, the balance of supply and demand for labour rapidly worsened in the first half of the year (Fig. 1).
  2. With continuing economic sluggishness, there was a rapid and large increase in the numbers of involuntarily separated unemployed persons and job seekers, leading to the expectation of prolonged periods of unemployment.
  3. The number of employees fell below the previous year's number for the first time.
  4. In addition to the above three business cyclical factors, the continued rise in structural and frictional unemployment pushed up the unemployment rate.
    In 1999, the employment and unemployment situation has remained severe, with the unemployment rate rising further to 4.8% in March.

A Significant Decline in New Job Openings

    The average number of new job openings in 1998 (excluding those for new school graduates) fell for the first time in four years, by 11.9% compared to the previous year. Seasonally adjusted quarterly figures show that since the October to December period of 1997, the number of new job openings continued to decline by 4 to 5% period to period, but slowed to a period to period decline of approximately 1% in the second half of 1998. In the January to March period of 1999, the figure increased, albeit slightly, by 0.3%. A breakdown by industries shows a decline in new job openings across all industries, with especially severe drop-offs in the manufacturing and construction industries. In particular, since the April to June 1997 period, new job openings in the manufacturing industry have declined significantly, falling some 40% by the October to December period of 1998 (Fig. 2).

A Significant Increase in New Job Seekers

    The number of new job seekers has been increasing since 1997, but the margin expanded significantly starting in 1998 amidst prolonged economic sluggishness. The average number of new job seekers for 1998 increased by an enormous 15.4% from the previous year. A breakdown of the increase in new regular job seekers into voluntarily separated job seekers, involuntarily separated job seekers, and job seekers excluding separated workers, reveals that the contribution of each group increased. In particular, the contributions of involuntarily separated job seekers and job seekers excluding separated workers were large (Fig. 3), while in the January to March period in 1999, the number of both separated job seekers fell. Against this backdrop, the number of people receiving employment insurance benefits in 1998 reached its highest level ever, exceeding even the high in 1975 following the first oil crisis.

Ratio of Active Job Openings to Applicants Falls to an All-time Low

    The active job opening to applicant ratio (seasonally adjusted) fell abruptly to 0.61 in the January to March period of 1998 (a decline of 0.07 points from the previous period), then further declined to 0.54 in the April to June period, 0.49 in the July to September period, and 0.47 in the October to December period (see Fig. 1 above). The 1998 average was 0.53, far below the 1997 average of 0.72, and the lowest figure on record since 1963 (when comparable statistics were first available). Likewise the monthly figure of 0.47 for October through December was the lowest on record. In the January to March period of 1999, the ratio leveled off somewhat at 0.49. The drop in the 1998 October to December period seems relatively small, compared to the recessionary periods immediately following the first oil crisis and the collapse of the bubble. However, the active job opening to applicant ratio fell to the lowest level ever because the level at the economic peak was far below 1.0 (Fig. 4). In the labour market for new school graduates, hiring interest among companies has fallen further, as evinced by the decline in the placement ratio for recent university graduates, and the significant decline in the ratio of job openings for recent high school graduates.

Decline in Labour Force Participation Rate for both Men and Women

    In 1998, the labour force increased by 60,000 persons over the previous year. This represents an extremely small increase. The male labour force actually declined for the first time since 1954 (when comparable statistics were first available). Throughout 1998, the labour force participation rate for men remained below those of the previous year. The average for the year was 63.3%, representing a decline of 0.4% point from the previous year. The male labour force declined by 0.4% point from the previous year, while the female labour force declined by 0.3% point. The decline in the labour force participation rate in 1998, analyzed by age bracket, shows a decline across almost all age brackets for males. There were especially large declines among the age 15 to 24 group and the age 65 and over group, which are highly sensitive to supply and demand. Among females, the level of labour force participation rate remained basically flat if changes in population composition are ignored. The decline of labour force participation rate for females in 1998 was smaller than the decline in 1993, 1994 and 1995. However, starting in the April to June period, the female labour force participation rate declined, primarily among those in the 35 to 44 age bracket. This was due to a decline in net inflow to the labour market, reflecting a reduced demand for part-time workers and other factors (Fig. 5).

A Switch to Decline in the Number of Employed Persons

    In 1998, the average number of employed persons was 65.14 million, representing a decline of 430,000 from the previous year. This marked the first decline since 1975, and was the largest decline since 1954 (when comparable statistics were first available). The number of employed males fell below the previous year's level right from the start of the year. In contrast, the number of employed females increased through the January to March period due to an increase in part-time workers. However, the number of employed females started to decline in the April to June period as demand for part-time workers slackened. In the latter part of the year, the decline for females was on par with the decline for males. A breakdown of all employed persons into self-employed workers, family workers, and employees shows that the decline in the number of employees (accounting for approximately 80% of all employed persons) had a significant impact on the overall drop in the number of employed persons (Fig. 6).

Significant Decline in Employees in Manufacturing and Construction

    In 1988, the average number of employees was 53.68 million, representing a decline of 230,000 from the previous year. This was the first year to year decline since 1954 (when comparable statistics were first available). This decline was largely influenced by severe hiring restrictions imposed in early spring, when there is normally a significant increase in employees (primarily newly employed persons). A breakdown by industry shows that while the number of employees continued to increase in the service industry, growth slackened considerably from 1997. Wholesale and retail trade, eating and drinking places industry maintained an upward trend primarily due to increases in temporary and day labourers in retail industries and eating and drinking places. In contrast, the number of employees fell significantly in the manufacturing and construction industries. In past recessions, the construction industry served as a source of employment, but the number of employees in the construction industry has declined during the current recession. Since the collapse of the bubble, the number of employees in the manufacturing industry has been on a downward trend. This halted temporarily due to increases in production in 1996 and 1997. However, employment adjustments following the collapse of the bubble had not yet been completed, so before the recovery in production strengthened, the number of employees began falling again from the 1997 October to December period. At the same time, there were recurring adjustments in the number of employees which, coupled with economic factors, led to a significant decline in the number of employees (Fig. 7).

A Large Decline in Blue Collar Workers

    An analysis by occupation type shows that the number of employees in blue collar jobs declined dramatically due to an abrupt rise in the employment surplus of skilled and unskilled workers against the backdrop of sluggishness in the manufacturing and construction industries. In addition, the employment surplus of managerial employees also increased, leading to a further decline in the number of employees. At the same time, the number of professional and technical workers has continued to increase, leading to an employment shortage in these areas (Fig. 8).

An Increase in the Percentage of Part-time Workers

    Among regular workers, general workers declined by 0.8% from the previous year, while part-time workers increased by 4.2% from the previous year. The overall percentage of part-time workers reached 18.86%, an increase of 0.75% point from the previous year. By industry, part-time workers represent a high 36.11% of workers among wholesale and retail trade, eating and drinking places industry (an increase of 1.30% from the previous year). The increase in part-time workers in these areas is also high.

Rate of Accessions Drops Significantly While Involuntary Separation Rate Rises

    The rate of accessions of regular workers fell to 1.88%, a decline of 0.11% point from the previous year, while the separation rate fell to 1.96%, a decline of 0.04% point from the previous year. Thus, for 1998 on average, there was excess separation of 0.8% point. This means that the decline in the number of regular workers can be seen primarily as the result of a decline in the rate of accession and an expansion of the excess separation margin, due to the severe hiring restrictions which were imposed in the first half of the year. However, an analysis of the separation rate in the first half of 1998 based on the particular reasons for separation shows that while the voluntary separation rate declined, the involuntary separation rate rose. In addition, there was a significant increase in the number of workers who ceased employment as a result of corporate bankruptcies. Thus, as described below, the increase in involuntary separations, including those resulting from bankruptcies and the like, can be seen as having had a large impact on the increase in unemployment.

An Abrupt Rise in the Unemployment Rate in February to April

    The unemployment rate rose rapidly between February and April 1998, exceeding 4% in April for the first time since current statistical surveys were initiated. The average unemployment rate for 1998 was 4.1%, exceeding the 1997 average by 0.7% point. The unemployment rate was 4.2% for males and 4.0% for females. These were the highest levels ever recorded for both sexes. The number of unemployed persons for 1998 on average was 2.79 million (an increase of 490,000 from the previous year), including 1.68 million males (an increase of 330,000 from the previous year) and 1.11 million females (an increase of 160,000 from the previous year). All figures were the highest ever recorded both in terms of absolute level and the amount of increase from the previous year. An analysis of the trends in the unemployment rate by month shows that following an abrupt rise from February through April, the rate climbed more gradually from May onward. The rate of increase again grew starting in February 1999, reaching 4.8% (for both men and women) in March 1999 (Fig. 9). At the same time, the number of unemployed rose to 3.17 million in the 1999 January to March period (raw data, representing an increase of 630,000 from the same period in the previous year), exceeding 3 million for the first time ever.
    Factors leading to the abrupt rise in the unemployment rate in the first half of 1998 include the following:

    In the second half of 1998, although the re-employment situation remained severe, evidence began to emerge that the declines in production and new job openings were stopping. This put an end to the accelerating increase in the number of separated job seekers seen in the first half of the year. Thus, the pace of increase in the unemployment rate slowed down from the first half of the year. The amount of increase in the unemployment rate in the current recession is much higher than the increases seen in the high-yen recession and after the collapse of the bubble, and is roughly on par with the levels seen following the first oil crisis.

A Rapid Increase in Involuntary Separation Unemployment

    An analysis of the increase in the number of unemployed persons based on job-seeking reasons shows significant increases in numbers for all reasons. In particular, the number of involuntarily separated unemployed persons showed a large rise in 1998, increasing by 310,000 from the previous year (Fig. 10). This has increased the number of persons becoming unemployed for the first time, and has simultaneously led to prolonged durations of unemployment. The number of voluntarily separated unemployed persons has also risen. However, this is due to prolonged unemployment durations; transitions from voluntary separation to new unemployment have slackened.
    An analysis of the number of unemployed persons in 1998 based on relationship to the head of household shows the highest ever levels of unemployment among spouses of heads of household and other family members (Fig. 11). Unemployment rates categorized by family relationships show that the unemployment rate levels and increases, for heads of household and spouses of heads of household, were lower than one-person households and other types of families. In addition, they were relatively stable. However, the unemployment rate levels for these family members are still the highest ever.

Increases in Inflows to Unemployment and Outflows to Non-labour Force

    An analysis of changes (flows) in labour force composition in 1998 shows that flows of employees into unemployment rose significantly for both males and females, and confirms a rapid increase in the newly unemployed. At the same time, there were dramatic increases in the numbers of males and females exiting the labour market and entering the non-labour force. In addition, there was also an increase in the number of unemployed persons entering the non-labour force. As a result of these shifts, the labour force participation rate has declined. In addition, there were significant rises in transitions from employment to both unemployment and the non-labour force. As a result, the number of employed persons fell by the largest amount ever (Fig. 12). Furthermore, 1998 saw a rise in the frequency of unemployment and an increase in unemployment durations for both males and females, reflecting the increase in involuntarily separated persons and the difficulty of re-entering the workforce.

A Significant Increase in Unemployment Due to Deficient Demand

    Unemployment rate/vacancy rate analysis (UV analysis) of the unemployment rate divided between the structural and frictional unemployment rate and rate of unemployment due to deficient demand shows that the structural and frictional unemployment rate accounted for 3.2% of the 4.1% unemployment rate (1998 average), while the rate of unemployment due to deficient demand accounted for 0.9%. The increase in the rate of unemployment due to deficient demand accounted for 0.6% point in the rise of 0.9% point in the unemployment rate from the 1997 October to December period to the 1998 October to December period. Thus in addition to the long-term rise in the structural and frictional unemployment rate, there was a rapid rise in the rate of unemployment due to deficient demand in 1998. Consequently, the unemployment rate rose above 4% (Fig. 13).

Rate of Real Employment for Disabled Persons Rises Marginally from Previous Year

    The rate of real employment for disabled persons as of June 1, 1998 was 1.48%, exceeding the 1.47% rate of the previous year and establishing a new all-time high. However, the percentage of companies which failed to fulfill the legal employment quota rose to 49.9%, marking an increase of 0.1% point over the previous yearŐs rate (49.8%). An analysis of the real employment rate by company size shows that while the rate rose over the previous yearŐs level among companies with 300 or more employees, it has fallen continuously since 1994 among companies with less than 300 employees. In addition, the number of disabled workers receiving termination notices rose, reflecting economic sluggishness.

Trends for Foreign Workers

    The number of foreign workers in Japan, including both legal and illegal workers, was approximately 660,000 in 1997. As part of this total, the number of foreigners with residence qualifications permitting employment rose to its highest level ever. The number of foreigners newly entering Japan in 1998 with the aim of obtaining employment rose by 8.5% from the previous year. Likewise the number of foreigners of Japanese ancestry and others who are employed has risen consistently. At the same time, the number of illegal workers is expected to remain high. According to the findings of a 1998 report on the employment of foreigners, the number of establishments directly employing foreign workers rose by 7.9% from the previous year. Three industries-manufacturing; services; wholesale and retail trade, eating and drinking places-account for some nine-tenths of the total.

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