Home News Japan’s Unemployment Rate Unchanged at 2.5 Percent in April

Japan’s Unemployment Rate Unchanged at 2.5 Percent in April

by fffp12

By: Richard Koch – Forex Focus

Employment falls by 10,000 to 66.93 million after rising by 480,000 in March.

Aligning with market expectations, the unemployment rate in Japan came in at 2.5 percent in April, unchanged for the third consecutive month this year. The unemployment rate for jobseekers in the age group ranging between 15 and 24 years of age also remained stable at 3.8 percent.

According to the Ministry of Internal Affairs and Communications, the reported rate is near the lowest level in almost 25 years, with the improvements in the labor market often touted to be one of the major achievements of Abenomics—the trademark economic policies of the Japanese prime minister (PM).

Usually, a low unemployment rate is positive for any economy since it indicates that businesses are able to create enough jobs for those seeking employment. More jobs lead to higher consumption demand, thus propelling the economic growth of a nation. But in the case of Japan, the third-largest economy in the world, this news may not be something to rejoice about.

A closer look reveals that the low unemployment rate in Japan is independent of its business cycle and economic-growth rate. One of the major reasons for the low level is the shrinking labor force and the ageing population. According to the Public Employment Security Office, the job-openings-to-applicants ratio stood at 2.41 in March of this year, the highest in the history of the country since statistical data was made available in 1963. This means that there are 241 job openings for every 100 job applicants. This low unemployment rate holds key takeaways and worrying signs for the broader Japanese economy.

Demographic time bomb 

The economy of Japan is often characterized as ”a demographic time bomb”. A cycle of low fertility rates over the years has led to a decline in the working-age population. According to the World Economic Forum, Japan’s labor force, which represented 70 percent of the population in the 1980s, has shrunk to below 60 percent and is expected to decline further to 50 percent by 2050. In fact, the population of Japan is forecast to fall by almost a quarter between 2010 and 2050 to below 100 million. These figures take into account the Japanese PM’s efforts towards increasing birth rates and promoting higher immigration. A higher proportion of population above 65 years of age implies rising Social Security costs and dwindling consumer spending.

Visible shortage of labor

The tightening in the labor force and declining population has led to a shortage of workers. There are several vacancies in labor-intensive jobs, such as elder care, cleaning, construction, frontline services, construction, etc., that are yet to be filled. The shortage of workers has led some sectors to adapt their business models to it, and some have even been forced to curtail their services.

For instance, the Yamato Transport Corporation, the nation’s leading door-to-door parcel-delivery firm, has been forced to cut back on its services due to a shortage of drivers amidst increasing demand for online shopping. Not being able to find staff, some restaurants are also reducing their hours of operation.

The manpower crunch is even more pronounced in major companies, especially ones requiring regular, full-time employees. A survey conducted by Teikoku Databank of more than 20,000 firms in Japan showed that about 44 percent of the respondents faced a shortage of full-time employees, which denotes the highest level when compared to those of the last 10 years. This ratio is even higher for much bigger firms, at about 51 percent. 

Short-term contracts and declining productivity 

The low unemployment rate in Japan also masks the low quality of jobs being created. From the mindset of jobs for life, Japanese companies have shifted towards drafting temporary contracts with lower pay. It has been cited that contract jobs have increased sharply from 20.3 percent in 1994 to 37.5percentin 2017. Additionally, increasing declines in employee productivity is being witnessed. The service sector employs too many people with seemingly little work to do.

Depressed wage rates

One of the positives of a low unemployment rate is a consequent rise in the wages of workers translating into increases in consumer spending. While the unemployment rate may be at its lowest in years, it has not been matched by corresponding wage hikes. In fact, some of the top companies, such as Toyota and Panasonic, announced their lowest wage hikes in years. Rising company profits have been retained instead of being used to increase pay. Reports suggest that although the share of profits going to the labor force has remained flat, retained earnings have increased by about 44 percent. Resultantly, the inflation rate remains way below Bank of Japan’s targeted 2 percent. This has prevented economic growth from surging ahead. 

Conclusion

The low unemployment rate in Japan is not indicative of rising economic growth or increasing wages. It masks some of the major issues faced by the Japanese economy, such as an ageing population. This has subsequently led to a declining labor force and falling productivity. In addition, the job-offers-to-applicants ratio, a key indicator of the labor market, has consistently remained below 1 since 1993, except for a brief period in 2006-07 when the ratio overshot the mark. To conclude, in spite of Japan’s unemployment rate being the lowest among the other G-7 countries, it must be looked at with caution.

 

Related Articles

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.