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ISSUES FACING THE JAPANESE LABOR MARKETHiroaki MiyamotoUniversity of Tokyomiyamoto@pp.u-tokyo.ac.jp
Copyright © Hiroaki Miyamoto
IMF’s views: Issues in the Japanese labor market1. Labor shortage
2. Labor market duality
3. Wage dynamics
Copyright © Hiroaki Miyamoto
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
Copyright © Hiroaki Miyamoto
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
Copyright © Hiroaki Miyamoto
How to address labor shortage
• Better utilization of young labor force
• Reduce mismatch
• Employment and occupational
Copyright © Hiroaki Miyamoto
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
Copyright © Hiroaki Miyamoto
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↓
Copyright © Hiroaki Miyamoto
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
Copyright © Hiroaki Miyamoto
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)
Copyright © Hiroaki Miyamoto
Issues in the Japanese labor market
1. Labor shortage
2. Labor market duality
3. Wage dynamics
Copyright © Hiroaki Miyamoto
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
Source: Ministry of Internal Affairs and Communication
Copyright © Hiroaki Miyamoto
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)
Copyright © Hiroaki Miyamoto
Issues in the Japanese labor market
1. Labor shortage
2. Labor market duality
3. Wage dynamics
Copyright © Hiroaki Miyamoto
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
Copyright © Hiroaki Miyamoto
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
Source: Ministry of Health, Labor and Welfare
Copyright © Hiroaki Miyamoto
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
Copyright © Hiroaki Miyamoto
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!!
Copyright © Hiroaki Miyamoto
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)
Source: Ministry of Health, Labor and Welfare
Copyright © Hiroaki Miyamoto
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
Source: Ministry of Internal Affairs and Communication
Copyright © Hiroaki Miyamoto
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
Copyright © Hiroaki Miyamoto
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
Copyright © Hiroaki Miyamoto
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”
Copyright © Hiroaki Miyamoto
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
Copyright © Hiroaki Miyamoto
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
Copyright © Hiroaki Miyamoto
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
Copyright © Hiroaki Miyamoto
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
Copyright © Hiroaki Miyamoto
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)
Copyright © Hiroaki Miyamoto
Female labor force participation (%)
0
10
20
30
40
50
60
70
80
90
100
Age
201419901980Male(2014)
Source: Ministry of Internal Affairs and Communication
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)
Copyright © Hiroaki Miyamoto
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)
Copyright © Hiroaki Miyamoto
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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