Declines in Construction and Manufacturing

    Until recently, Japan, supported by robust employment demand in services and other sectors, had never seen a calendar year in which the number of employees fell below the number of the previous year. However, this happened for the first time in 1998 due to a decline in construction, which had absorbed labour during the recession, coupled with a large decline in manufacturing (Fig. 34).

Background Conditions Leading to a Decline in Job Creation Output in the Construction Industry

    Factors which contributed significantly to the decline in job creation output in construction include a large decline in demand. This was coupled with a low level of labour productivity since this followed the increase in the number of employed persons, which had continued even after the collapse of the bubble (Fig. 35). Another factor was the heightened sense of unease about the outlook for construction demand.

A Decline in Production before Recovery from the Impact of the Bubble Collapse

    The decline in the number of employed persons in manufacturing has occurred in the same manner as after the first oil crisis and after the collapse of the bubble. The relationship between production and employment (employment elasticity) is the same as before.
    An analysis of the relationship between the number of employed persons in manufacturing and labour productivity shows that when the labour productivity level falls below the trend line, the number of employed persons reverses to a downtrend (Fig. 36). The current rapid and large decline in the number of employees seems to reflect the combined effect of a decline in production starting before recovery from the impact of the bubble collapse.

An Increase in a Sense of an Employment Surplus due to Heightened Sense of Unease about the Future

    However, compared to the degree of decline in labour productivity and corporate profits, a sense of an employment surplus has gained strength beyond former levels (Fig. 37). The heightened sense of unease about the future has reduced the expected growth rate and seems to have even further strengthened the sense of an employment surplus. Against the backdrop of the requirements of capital markets as globalization progresses, it is also necessary to consider the growing tendency of companies to quickly eliminate labour holding.

Increasingly Rapid Employment Adjustments

    Over the medium term, companies have become somewhat quicker at making employment adjustments in response to variations in production following the collapse of the bubble. In manufacturing, other influential factors include the rise in the percentage of temporary and day workers in which employment adjustments are quite rapid, in addition to the increasingly rapid adjustments in regular employment. In contrast, the pace has slackened in services, indicating that companies are cautiously adding jobs to meet the need for production increases (Fig. 38).
    Companies that experience two consecutive periods of operating losses make significant employment adjustments. With widespread operating losses seen in corporate Japan following the collapse of the bubble, companies are adjusting their employment levels even more rapidly (Fig. 39).

Employment Adjustments Focused on Controlling Accessions

    In manufacturing, the rate of accessions can account for 70% or more of variations in employment, whereas the separation rate accounts for less than 10%. This means that companies adjust their employment levels by controlling accessions. Large companies have a strong tendency to do this (Fig. 40).
    The steel industry has seen a steady and continuous decline in the number of employees. Employment adjustments based on controlling accessions are close to their limit in this industry, so the portion of employment adjustments accounted for by the separation has increased (Fig. 40).
    The rate of accessions in manufacturing fell significantly in the early 1990s, and has remained at quite a low level (Fig. 41). Going forward, with further industrial structure adjustments expected, it may become difficult for companies to rely on further control of accessions. Therefore, it will be necessary to keep a close watch on the impact on the employment of existing workers.