Issues Facing the Japanese Labor Market for 2016 IMF seminar · ISSUES FACING THE JAPANESE LABOR...

ISSUES FACING THE JAPANESE LABOR MARKETHiroaki MiyamotoUniversity of [email protected]

Copyright © Hiroaki Miyamoto

IMF’s views: Issues in the Japanese labor market1. Labor shortage

2. Labor market duality

3. Wage dynamics


Labor shortage• Shrinking and aging population

• Reduce labor force & potential output growth• Affect fiscal sustainability

65.7756.83

37.95

010203040506070

2013 2030 2060

Labor Force (In Million)

Source: Cabinet Office


How to address labor shortage• Boost female labor force

• Raise married female labor participation rate

• Encourage the supply of elderly workers

• Flatten wage curve & Raise retirement age

• Increase foreign workers

• Issue: What sort of foreign workers accept?

• Increase take-home pay

• Support wage increase, lower social security premiums


How to address labor shortage

• Better utilization of young labor force

• Reduce mismatch

• Employment and occupational


How to address labor shortage• Better utilization of young labor force

63.5

94.2

88.3

69.2

50.055.060.065.070.075.080.085.090.095.0

100.0Employment rate, Male (%)

20-2425-2930-3435-3940-4445-4950-5455-5960-64

Source: Ministry of Internal Affairs and Communication


How to address labor shortage

• Better utilization of young labor force

• Youth is under inferior employment conditions• 0.9 millions in unemployed (15-34 years old)• 1.8 millions in unstable causal jobs “Freeter”• 0.6 millions in NEET• 35% of youth are working poor (6 millions)

• Less training opportunity → human capital↓ →economic growth↓


How to address labor shortage• Reduce employment-type and occupational mismatch

1.32

0.82

1.68

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

Total Regular Part-time

0

0.37

0.66

1.2

1.26

1.3

1.62

1.87

1.92

2.72

3.3

5.76

0 1 2 3 4 5 6 7

Unclassified

Clerical occupations

Delivery, cleaning, packaging

Production process

Agriculture, forestry and fishing

Management

Sales

Transport and machinery…

Professionla and technical

Services

Construction and mining

Security

Jobs-to-applicants ratio

Sources: Ministry of Health, Labor and Welfare


Mismatch has increasedUnemployment rate 1990Q1-2015Q3

3.39

-0.01

-1

0

1

2

3

4

5

619

9019

9119

9219

9319

9419

9519

9619

9719

9819

9920

0020

0120

0220

0320

0420

0520

0620

0720

0820

0920

1020

1120

1220

1320

1420

15

%

Total Equilibrium Cyclical

Mismatch increases

Structural break 1998Q1

Sources: Ministry of Internal Affairs and Communication; The Japan Institute for Labour Policy and Training (JIL)


Issues in the Japanese labor market

1. Labor shortage


3. Wage dynamics


Labor market duality• The ratio of non-regular workers has increased

15.3

37.2

7.7

21.829

55.8

0

10

20

30

40

50

6019

8419

8619

8819

9019

9219

9419

9619

9820

0020

0220

0420

0620

0820

1020

1220

1420

15Q

2

%

Total Male Femal



Labor market duality• Pros:

• Lower the unemployment rate• Bring “voluntary-non-regular workers”

• Cons:• Reduce human capital• May reduce TFP

• Why has labor market duality deepened in Japan?• Strict employment protection (Aoyagi and Ganelli, 2015)• Slowdown of economic growth (Miyamoto, 2015)


Issues in the Japanese labor market

1. Labor shortage


3. Wage dynamics


Recent wage dynamics2000Q1-2015Q3, SA

0.1 1.3

-6

-5

-4

-3

-2

-1

0

1

2

3Total cash earnings (growth rate, %)

Total Regular Part-time

Source: Ministry of Health, Labor and Welfare


Wage dynamics (1997=100)1990Q1-2015Q3, Nominal

84.9

75.0

80.0

85.0

90.0

95.0

100.0

105.0

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Total cash earnings



Wage: international comparison1997=100, Private sector, hourly earnings

89.3

164.8 154.9

60.0

80.0

100.0

120.0

140.0

160.0

180.0

Japan United States Euro area (19 countries)

In Japan, wage is downward flexible

Source: OECD


Why have wages declined?1. Increased “non-regular workers”

• 60% of regular workers’ wages

2. Bonus (special cash earnings) system• A relatively unique aspect of the Japanese labor market

3. Lower worker’s bargaining power & Weak wage indexation• Miyamoto (2015)

4. Increased “elderly workers”• Genda (2015)

→ Wage deflation is not short-term (cyclical) problem!!


Why have wages declined?

4.0

5.0

6.0

7.0

8.0

9.0

10.0

11.0

20.022.024.026.028.030.032.034.036.038.040.0

1990

.019

91.3

1992

.519

93.8

1995

.019

96.3

1997

.519

98.8

2000

.020

01.3

2002

.520

03.8

2005

.020

06.3

2007

.520

08.8

2010

.020

11.3

2012

.520

13.8

2015

.0

¥10

thou

sand

Total cash earnings Scheduled Bonus (right axis)



Why have wages declined?

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64

%

Wage growth rate, Male, College and grad school graduates

1980s 1990s 2000s 2010-14



What is the main problem?• The Japanese employment system (JES) ceases working

well and causes several serious problem.

• JES: Life-long employment, Seniority wage, Internal training and promotion, Enterprise union

• The JES was created and prevailed thanks to rapid economic growth and large youth population

• No more rapid economic growth & large youth population


Structural problems• In the JES, a standard worker is a full-time high-salaried male worker

→ The JES is not for youth, females, aged, non-regular

• Structural problems:• Youth idleness• Female participation• Older worker participation• Regular vs. Non-regular

• Incumbents also face problems:• Long working hours• Unlimited services• Frequent shifts of assignment to different jobs & workplaces


Possible “solutions”• Economic growth

• Employment is the derived demand of production• Companies are not confident about the future

• Labor market reform• Prepare more fair and competitive conditions• Use resource reallocation functions of the labor market• Promoting a more flexible labor market

• Human recourses are reallocated to match changes in the industrial and occupational structures

• Potentially raise productivity of the economy• “Equal pay for equal work”


To enhance the flexibility of the labor market

• Information

• Opportunities for training

• Evaluate the labor service objectively and fairly

• Open job-matching service to private sector providers

• Reduce employment protection• Make explicit firing rules (legal uncertainty)

Thank you

Appendix


Structural changeEconomic growth

9.2

3.8

1.1 1.0

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

1956 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98

2000

2002

2004

2006

2008

2010

2012

%

Growth rate of real GDP: 1956-2013

Source: Cabinet Office


01,0002,0003,0004,0005,0006,0007,0008,0009,000

10,000

195019601970198019902000201020202030204020502060

Ten

Tho

usan

d

0-14 years old 15-64 years old 65 years old or older

Structural changeDemographic changes

Forecast

Source: National Institute of Population and Social Security Research


Increased “Non-regular workers”

15.3

37.2

0

10

20

30

40

50

60

1984

1987

1990

1993

1996

1999

2002

2005

2008

2011

2014

2015

Q3

%

Proportion of non-regular workers

Total Male Femal

0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

¥100

0

Wages

Regular Non-regular

About 60% of regular worker’s wage


Scheduled vs Bonus1993 - 2014

60,000

65,000

70,000

75,000

80,000

85,000

90,000

95,000

100,000

200,000

250,000

300,000

350,000

400,000

450,000

¥

Regular Workers

Total cash earnings ScheduledBonus (right axis)

0

1,000

2,000

3,000

4,000

5,000

6,000

80,000

82,000

84,000

86,000

88,000

90,000

92,000

94,000

96,000

98,000

Part-time Workers

Total cash earnings ScheduledBonus (right axis)


Female labor force participation (%)

0

10

20

30

40

50

60

70

80

90

100

Age

201419901980Male（2014）


Gap b/w male & Female

0

10

20

30

40

50

60

70

80

90

100

Age

single（2012）

single（2000）

married（2012）

married（2000）


Labor turnover in Japan and the U.S.

• With a flexible labor market• Human recourses are reallocated to match changes in

the industrial and occupational structures• Potentially raise productivity of the economy

Japan The U.S.Labor Market “Rigid” “Flexible”Worker flows rate

Job finding rate 14.2% 59.4%Separation rate 0.4% 3.6%

Unemployment rate 3.5% (1980-2012) 5.8% (1948-2013)Turnover rate 9% (annual) 3% (monthly)

Source: Miyamoto (2011); Lin and Miyamoto (2012)


Reference 1. Aoyagi, Chie & Ganelli, Giovanni, 2015. "Does revamping Japan's

dual labor market matter?," Economic Systems, Elsevier, vol. 39(2), pages 339-357.

2. Lin, Ching-Yang & Miyamoto, Hiroaki, 2012. "Gross worker flows and unemployment dynamics in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 26(1), pages 44-61.

3. Miyamoto, Hiroaki, 2011. "Cyclical behavior of unemployment and job vacancies in Japan," Japan and the World Economy, Elsevier, vol. 23(3), pages 214-225.

4. Miyamoto, Hiroaki , 2015. "Growth and non-regular employment," Working Papers SDES-2015-20.

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