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  • 23/09/2015
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Japan is creating jobs but workers do not prosper

Casualisation of the workforce is stifling the reflationary experiment Something odd is going on with Japan’s labour market. Unemployment is at 3.7 per cent. Recently, it has been as low as 3.5 per cent, considered by some economists to be pretty much full employment. (The uptick is only because the previously discouraged are flooding back to work)

The trend is being helped by demographics, which sees more baby-boomers retiring than millennials starting out. For every 100 people looking, there are 110 jobs on offer, the best ratio in 20 years. In some industries, including truck driving and healthcare, employers cannot find workers for love nor money. Building site foremen are in desperately short supply as construction companies work overtime to rebuild the tsunami-devastated coast and prepare for Tokyo’s 2020 Olympic Games. One restaurant chain specialising in beef-and-rice dishes was forced to close a 10th of its roughly 2,000 restaurants this summer because it could not find enough staff.

japan is creating jobs

You would have thought that wage inflation would be going crazy as a result. Unfortunately for Japan, you would be wrong. The government has badgered companies, which are making record profits, to share the love. Some have responded with modest wage increases, but not enough to keep pace with prices, which are rising thanks to monetary stimulus and a 3 percentage-point increase in sales tax.

It is just possible that labour-market tightness is finally filtering through. In July cash earnings for regular employees rose a hefty 2.6 per cent, the fastest increase for 17 years. But much of this has come in cash bonuses, not in the base pay that gives workers lasting confidence.

Japanese wages do not seem to be responding to normal market pressures. Why not? The conundrum has its roots in the altered structure of the labour market. Contrary to common perception, Japan has an exceptionally flexible workforce. Outside the ranks of the protected “job-for-lifers” – a much rarer breed these days – nearly 40 per cent of workers are about as flexible as you get. They work in poorly paid jobs for hourly rates. Benefits are all but non-existent. For most of these workers, sometimes referred to as the “precariat”, unemployment is a mere “sayonara” away.

Of course, Japan is hardly alone in seeing the bifurcation of its jobs market. Non- or semi-skilled work commands a lower price in a world where technology and cheap foreign labour are ready substitutes. In Japan, though, this is proving a particularly thorny problem. For its reflationary experiment to work, wages must begin to rise in line with inflation. But the casualisation of the labour force is short-circuiting that process. Moreover, people in the precariat are less likely to marry and have children. If Japan is to solve its demographic problem, it will have to tackle the labour issue.

What can be done? At least three things. The first is to narrow the gap between over-protected permanent workers and under-protected non-permanent ones. Akira Kawamoto of Keio University argues that coddling one section of the workforce does not serve Japan’s interests well. Absolute job security stifles risk-taking, he says, something that Japan desperately needs. Simply making life less cushy for permanent workers is not likely to do any good on its own.

If adding to Japan’s aggregate demand is the goal, the big push should be on improving the wages and conditions of temporary workers. Crucially, it should be made far easier for them to migrate to permanent jobs and for workers of all descriptions to move more freely between companies. An open, fluid labour market would help cross-fertilise ideas and allocate resources to productive parts of the economy.

Second, immigration policy needs to be bolder. True, allowing in lots of foreign workers might put downward pressure on wages, at least initially. Yet there are some jobs that Japanese are simply not prepared to do. If foreigners were brought in, for example, to provide affordable care for children and the elderly, this could free Japanese women to have more fulfilling careers.

That brings us to the third point. Women are flooding into the workforce in unprecedented numbers. Nearly 65 per cent of women aged between 15 and 65 are working, the highest percentage since records began in 1968.
There is a catch. The majority of these jobs are badly paid, part-time or both. Too many companies still view men as the primary wage earner: younger women are there to look pretty and older women to do the drudgery. If Japan is to progress, such attitudes need to change.

Legislation can help. One simple measure would be on tax. At present the head of a household, usually male, can claim a dependent tax exemption for his wife so long as she earns less than about $10,000 a year. Neutral tax treatment of second earners would remove this disincentive, encouraging married women to pursue full-time careers. And if the men did not like it, they could always stay at home and look after the kids.



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