Japan’s Plunging Jobless Rate Is All About Aging, not Abenomics

Labor-market rules crimp wage gains and damp inflation.

Is Abe the Architect of His Government's Downfall?

As Prime Minister Shinzo Abe sees it, Japan’s tight labor market is a key success of his economic strategy: the unemployment rate is the lowest in 21 years and the job-to-applicant ratio is the highest in 25 years.

Analysis of data over a longer period indicates that the nation’s aging and declining population is the driving force, and that while more than 1 million new jobs have been created since Abe came to power in late 2012, labor-market rules mean most of the change is in non-permanent, lower-paying positions.

Hisashi Yamada, the chief economist at the Japan Research Institute, said that what he sees is a shrinking workforce, rather than something positive, such as growing demand.

The job-to-applicant ratio stood at 1.37 in June, the highest since 1991, while the unemployment rate was 3.1 percent, the lowest since 1995, according to government data.

This tightening is linked to the number of people aged 15-64 continuing to get smaller, while the number of elderly Japanese grows.

Companies in the construction industry are struggling to find workers, which may become a growing problem as Tokyo accelerates the building of sports facilities and infrastructure for the 2020 Olympics. The services sector is also having trouble, particularly in elderly care.

“The most important thing is for people to move from stagnant industries to growing sectors, but regulatory reforms aren’t happening to allow for this,” said Yamada.

Wages are little changed and national income has been flat since the global financial crisis. An explanation lies in a breakdown of the types of new jobs created during Abenomics: The net gains have been in non-regular jobs, including part-time and temporary positions. The number of regular jobs is still below what it was at the end of 2012, although the gap is shrinking. It remains to be seen if shrinkage will continue.

When senior workers retire and leave well-paying full-time jobs, companies are replacing them with non-regular employees on less-generous contracts, according to Yamada.

 

 

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