The employment and unemployment situation in Japan is more severe than it has ever been. The number of unemployed rose by 500,000 in the first half of 1998. Since April of last year, the unemployment rate has been in the 4% bracket, reaching a level not previously experienced. At the same time, the number of employees declined from the preceding year. This is the first time that has happened year to year (based on calendar years) since 1954 (the first year meaningful comparisons were available). The reductions in the number of employees are especially severe in the manufacturing and construction industries.
These trends largely reflect the sluggishness in the Japanese economy as a whole, but that is not the only issue. They also reflect the fact that, since the collapse of Japan's economic bubble at the start of the 1990s, the labour market has undergone both mid and long term changes and structural changes.
More specifically, the unemployment rate, which initially fell during the bubble, has gradually and continuously risen in the 1990s, at a much faster pace than in the 1970s and 1980s. In addition, the Japanese economy as a whole has been in the midst of rapid structural change due to globalization, computerization, and other developments. This change has effected enormous changes in the structure of the labour market. At the same time, the labour supply has been significantly impacted by the rapid aging of society, the emergence of women in the workplace, and other factors. Furthermore, employment patterns are diversifying (e.g., the rapid increase in part-time workers), while young people's perception of unemployment and job switching is changing dramatically.
Therefore, in considering the future of the employment and unemployment situation and examining what employment policy should be, it is important to analyze mid and long term and structural changes in the labour market. In addition, it is essential to have an understanding of conditions relating to job creation in order to stabilize and ensure employment.
This year's white paper describes "Trends and Features of the Labour Economy in 1998" in Part I and analyzes the trends in the labour economy, which became increasingly severe, reflecting the trends in the business climate. Based on such perspectives, Part II, "The Rapidly Changing Labour Market and New Job Creation" presents an analysis of the situation in the labour market with a focus on unemployment, as well as an analysis of structural changes in the labour market. Conditions relating to job creation are also assessed. In addition, challenges for ensuring a smooth conversion of the employment structure in order to stabilize employment as the 21st century approaches are examined.
The following is an outline of this analysis.Outline
Part I Trends and Features of the Labour Economy in 1998
In 1998, the employment and unemployment situation became increasingly severe with an average unemployment rate of 4.1% for the year, representing a significant (0.7% point) increase over the preceding year. In the background of this development was the long-term, continuing impact on the Japanese economy of problems equivalent to those of the first oil crisis. The total amount of cash earnings declined in comparison to the preceding year for the first time since this study was initiated. In addition, total working hours continued to decline. Consumption expenditures declined dramatically due to reduced real income and a significant drop in the average propensity to consume.
Chapter 1 Trends in Employment and Unemployment
Rapid Worsening of the Labour Supply and Demand Balance in First Half of the Year
The employment and unemployment situation in 1998 was characterized in the first half of the year by a large decline in the active job opening to applicant ratio due to a significant decrease in job openings and a large increase in the number of job applicants, followed by a more gradual decline in the second half of the year. As a result, the active job opening to applicant ratio fell to 0.53, the lowest level recorded since 1963 (when comparable statistics were first available). Likewise, in the labour market for new graduates, hiring interest among corporations fell further. Due to the worsened balance of labour supply and demand, the unemployment rate abruptly rose between February and April, exceeding 4% for the first time in April. The unemployment rate continued to rise gradually from May onward, reaching 4.8% in March 1999. The length of unemployment has increased due to greater numbers of involuntarily separated unemployed persons, as well as increased difficulty in gaining reemployment due to hiring curbs and reduced employment demand. In addition, the number of employees (annual average) declined significantly in the construction and manufacturing industries, falling below the previous year's figures for the first time. Continued increases in structural and frictional unemployment, in addition to an abrupt increase in the unemployment rate due to deficient demand, lifted the level of the unemployment rate.
Chapters 2-4 Trends in Wages and Working Hours, etc.
Total Amount of Cash Earnings Below Prior Year for First Time Since the Study Was Initiated, and a Continued Reduction in Total Working Hours
The total amount of cash earnings fell below the previous year's level for the first time since the study was initiated due to low growth in scheduled cash earnings, and a significant decline in non-scheduled cash earnings and special cash earnings. Total working hours continued to decline due to a drop in non-scheduled working hours in addition to a decline in scheduled working hours. In terms of workers' household expenditures, consumption expenditures fell dramatically due to a significant decline in the average propensity to consume against a backdrop of employment instability, a worsened income environment, and a heightened sense of uncertainty about the future, in addition to the largest decline ever in real income since this study was initiated.
Part II The Rapidly Changing Labour Market and New Job Creation
Chapter 1 Labour Market Conditions
The unemployment rate for young people is high due to factors such as an increase in unemployment due to voluntary separations. The unemployment rate is low for heads of households and middle aged people (aged 45 to 59), but gaining reemployment is difficult, increasing the likelihood of prolonged unemployment. Among the elderly, employment demand is low, and the unemployment rate for older males aged 60 to 64 is high. Workers who were separated in the manufacturing and construction industries tend to have extended separations. The unemployment rate trend reversal between Japan and the US is due to differences in economic trends and improved efficiency in the US labour market. Increased unemployment impacts upon society in a variety of ways, including lower production and consumption, loss of skills, and psychological shock. Unemployed households minimize the decline in their consumption by using their assets and relying on the income of spouses.
Unemployment may be divided between unemployment due to deficient demand, which rises or falls according to economic trends; and structural and frictional unemployment, which is determined by the structure of the labour market. The structural and frictional unemployment rate has exhibited a mid and long term rise, especially following the first oil crisis and the collapse of the bubble. The significant rise following the collapse of the bubble is reflected in increased mismatches among industries and age groups, and greater diversity in employment patterns. Continuous unemployment duration, which is closely linked to these mismatches, rose following the first oil crisis and the collapse of the bubble. Frequency of unemployment, which is closely linked to frictional unemployment, tends to rise except during a bubble. Against the backdrop of increased desire for employment among women, the supply and demand sensitivity of the labour force rate for women has declined, and the unemployment rate has become sensitive to supply and demand.
The significant decline in the number of employees detailed above is due to declines in the manufacturing and construction industries. The significant decline in the manufacturing industry was due to a further drop in production and decline in labour productivity before recovery from the impact of the bubble collapse. A sense of employment surplus has gained strength beyond former levels due to a heightened sense of uncertainty about the future. Following the collapse of the bubble, corporations have become somewhat quicker in taking steps to adjust to fluctuations in production and corporate earnings. Corporate employment adjustments are focused primarily on reduced hiring, but this approach may become more difficult in the midst of industrial structure adjustments in the future.Chapter 2 Job Creation
In tertiary industries, the number of employees has continued to grow even following the collapse of the bubble. Employment growth has been particularly strong in information fields, business services, the medical and social welfare fields, recreation and other service industries; supermarkets, convenience stores, and other parts of the wholesale and retail trade; and eating and drinking places. The percentage of job creation taking place in medium-sized companies has been gradually increasing, and further job creation in companies of this size is expected going forward. During the economic bubble, job creation was focused in major metropolitan areas, but the pull of metropolitan areas has weakened since the collapse of the bubble.
Job creation at new workplaces is roughly evenly divided between new companies and business expansion by existing companies. Three-fourths of new companies are independent; the other fourth are established as subsidiaries. Employment at existing establishments rises or falls primarily according to fluctuations in the job creation rate. Within individual establishments, few full-time workers are replaced by part-time workers. The expansion into new businesses by companies is focused on fields related to their main businesses. Companies try to rely on internal hiring to meet worker requirements, but are increasingly looking to the outside for workers not available internally.
Telecommunications, medical and social welfare, education and recreation, and business support are four fields that have experienced considerable employment growth in recent years, and are expected to create more employment opportunities in the future. Future challenges in all of these fields include obtaining suitable workers; establishing working conditions that will allow employment requirements to be met; utilizing middle-aged and older workers as the aging society with fewer children continues to develop; training workers who will be adaptable to needs and technologies for greater sophistication and diversity.Chapter 3 Converting the Employment Structure
The employment structure has changed greatly in terms of both industrial and occupational aspects, but the impact of job changes has been small until now. Going forward, as the aging society with fewer children continues to develop, new employment of younger people and retiring of older workers are not enough to sufficiently change the employment structure. Therefore, job changes will play an important role. In terms of occupational skills development, there is an increasing focus on self-development as well as on-the-job training.
Employment strategies expanded from after-the-fact policies to employment maintenance, mismatch, and job creation measures. Rules were established for the labour market, and functions for adjusting labour supply and demand were strengthened. In addition, development of occupational skills became an increased center of focus. The payment of unemployment benefits for those with employment insurance has effects such as supporting income in households suffering from unemployment. Public job training has benefits such as providing skills that enable a higher job retention rate. In recent years, there has also been an increase in the use of Public Employment Security Offices for persons with a professional employment background in specialist, technical, and managerial positions. There is cooperation on the international level as well, as the importance of finding employment solutions gains recognition.
One aspect of long-term employment practices is the idea of a worker being employed at a single company from entrance after graduation until retirement. Another aspect is the idea that the company will not easily let workers go and will strive to maintain employment, even during recessions. In terms of society, there are advantages and disadvantages for both companies and workers. Employment practices are likely to change gradually going forward, but support currently remains high among both companies and workers. Rapid employment adjustments could cause companies to lose credibility and make it more difficult for them to obtain required workers.
Critical issues for supporting smooth labour movement in response to gradual changes include improving employability, preparing the labour market, preparing a safety net, and increased job creation. At the same time, support for employment maintenance is also important. In order to eliminate employment instability among middle-aged workers, it is necessary not only to improve employability, but also to establish measures for taking advantage of acquired skills. Important challenges for developing occupational skills include securing and augmenting investments to develop occupational skills, proper support for needs, establishment of organizational and evaluative systems, and development of occupational skills among younger workers.