Japan's Lost Generation

Japan Inc. is back, but millions of young workers have been left behind

By just about any measure, Japan is back. The economy is growing at 2% a year, company profits are soaring, and land prices are rising. Unemployment, meanwhile, is down to 4% as Japan Inc. has started hiring again, with many college grads receiving multiple job offers. Suddenly, the future looks bright for a new generation of Japanese.

Try telling that to Sadaaki Nehashi. The 31-year-old contract worker at delivery company Yamato Transport makes just $1,100 a month sorting packages—about a third of the average income for full-time employees in Japan. Thats a step up from when he landed the job six years ago, though not enough for Nehashi to afford a place of his own, so he lives at his parents' modest home in central Tokyo. "I've had to lower my expectations a bit," says Nehashi, who graduated from university with a degree in marine biology in 2000. "But if I had waited around for a full-time job, I might have been waiting forever."

If a rising tide lifts all boats, then why are millions of Japanese like Nehashi treading water? There's an entire generation of people in their late 20s and early 30s who came of age during Japan's so-called lost decade, a stretch of economic stagnation that started to ease in 2003. Through that period, with Japanese companies in retrenchment mode, young people faced what came to be known as a "hiring ice age." Many settled for odd jobs or part-time work to make ends meet but hoped eventually to find their way into regular employment with the stars of corporate Japan. Instead, they're being passed over in favor of new graduates—a serious problem in a country that still values lifetime employment and frowns on midcareer job-hopping.

This group is called the "lost" or "suffering" generation. Some 3.3 million Japanese aged 25 to 34 work as temps or contract employees—up from 1.5 million 10 years ago, according to the Ministry of Internal Affairs. These young people have earned various less-than-desirable classifications in hierarchy-conscious Japan. They might be keiyakushain, or contract workers, typically lower-paid than full-time staff, with fewer benefits and minimal job security. Or they're hakenshain (people employed by temp agencies); freeters (those who flit from one menial job to the next); or, at the bottom, NEETS (an acronym coined in Britain that stands for not employed, in education, or in training). The plight of such folks was the subject of a recent TV drama called Haken no Hinkaku, or Dignity of the Agency Worker, the saga of a twentysomething temp who must put up with the snobbery of full-time colleagues despite her long list of qualifications.

SKILLS SHORTAGEWith Japan's economy on the mend, you'd expect the ranks of the underemployed to shrink fast. But the number of agency and contract workers continues to swell. To spur employment during the lean years, Tokyo made it easier for companies to add temporary employees. Now, even with fat times back, big employers are reluctant to take those people on permanently.

In their defense, Japanese companies say people from the lost generation aren't equipped to move into the middle rungs of the corporate world. "No matter how much companies want to hire from among this pool, many in their early 30s just don't have the needed skills," says Toshihiro Nagahama, senior economist at Dai-Ichi Life Research Institute. Employers also fear that freeters who have drifted from one job to another will be less loyal than ambitious grads hoping to work their way up through the ranks.

These millions of young people face a life that's vastly different from that of their parents. For Japan's postwar baby boomers, jobs provided certainty, spurring them to partner and procreate. Faced with insecurity, many of Japan's twenty- and thirtysomethings are doing neither. The number of marriages fell to 714,000 in 2005 from 1 million-plus in the 1970s. That could exacerbate a drop in Japan's birthrate, already among the lowest in the developed world. "You don't get maternity pay, and you have no job to return to—that makes it hard,"

says Masako Ikeda, a 30-year-old who works at a video game company in Tokyo but is employed by a job agency.

The suffering generation also suffers from more mental illness. Workers in their 30s accounted for 61% of all cases of depression, stress, and work-related mental disabilities last year, up from 42% in 2002, according to a study by the Japan Productivity Center for Socio-Economic Development. "Because of the anxiety stemming from job insecurity, it is quite natural that these people have problems," says Susumu Oda, the psychiatrist in charge of the survey.

The fate of the likes of Nehashi and Ikeda worries Japan's economists. If members of the lost generation don't land higher-paying, salaried jobs, they won't have much pocket change to spend or funds to sock away for their old age. Credit Suisse Group (CS) estimates these people could saddle Japan's taxpayers with $67 billion a year in retirement and health-care costs if their number remains at current levels for the next three decades.

Tokyo is waking up to the problem. Last year it set targets for paring the ranks of the underemployed, and it is offering companies $2,500 for each new hire of a freeter aged 25 to 34. And in September, the Health, Labor & Welfare Ministry unveiled projects to help NEETS join the workforce. It plans to double the number of NEET outreach centers, staffed by psychologists and job counselors, to 50 this year and to increase training schools to 40 from the current 25. "The government is finally realizing that it has a crisis on its hands," says Yosaku Sato, director of the Bunka Gakushu Cooperative Network, a nonprofit based on the outskirts of Tokyo that receives $200,000 a year in public funds to run training and placement services targeted at young people.

Some companies are pitching in, too. Toyota Motor Corp. (TM), which has tripled the number of workers it employs on short-term contracts to 10,000 since 2001, put 943 into permanent positions last year and plans to convert 1,200 more by next March. Phone company Nippon Telegraph & Telephone Corp. (NTT)and Fast Retailing Co., owner of the Uniqlo clothing chain, have announced similar plans.

RANKLED RANKSMeanwhile, some disgruntled Japanese contract workers are pressing for change the old-fashioned way. Electronics giant Canon Inc. (CAJ) is in the spotlight after Hideyuki Ohno, a 32-year-old temporary worker at the company's Utsunomiya factory, near Tokyo, organized 17 other temps into a union. His beef: After seven years on the job, he's still employed by an agency, not Canon. Ohno, who earns $2,200 a month polishing glass lenses for steppers, the complex machines used to make semiconductors, says he hasn't had a raise in five years. "I heard my salary was nearly half of a regular staffer of the same age, but I tried not to care about it too much," says the father of two. Then Ohno read in a newspaper that Canon may have violated employment law in not offering him a permanent position after his many years with the company. That spurred him to file a complaint with the Labor Standards Office.

Despite growing profits, Canon still relies heavily on outside help. In 2006, it increased its ranks of contract employees by 19%, to 37,000; permanent staff rose 4%, to 50,753. Canon declined to comment on Ohno's case but says it treats temporary workers fairly and follows all labor laws.

Ohno says the dispute has opened a rift between temps and full-timers at the plant where he works. After he launched his lawsuit, tape was put on the floor to demarcate the line between permanent employees and temps. "We used to all work together," says Ohno. "But now they don't even say, Good morning.'"

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