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Unemployment Rate Remains at Highest Level Ever

October 9, 1997

Job-placement desks are seeing more elderly faces. (Photo: Kyodo)

Despite the fact that the economy is showing signs of having moved onto a track of moderate recovery, the unemployment rate in Japan remains at the worst level ever. The main causes are the various social conditions arising in Japan at the moment, especially the rise in voluntary retirement among women and young people wishing to change jobs, the increase in the number of elderly people wanting to work, and the rise in involuntary retirement among mainly middle-aged and elderly people brought about by corporate restructuring. Since an upturn in temporary unemployment caused by deregulation and a decline in jobs as a result of public works cuts are forecast from now on, the unemployment rate can be expected to stay at a high level for quite a while.

High Unemployment Rate in Period of Recovery
According to a survey by the Management and Coordination Agency, although the unemployment rate in July was 3.4%, an improvement of 0.1 points over the previous month, the figure was still close to the May and June level of 3.5%, which was the worst-ever level since the current survey began. The number of unemployed was 2.24 million persons, an increase of 30,000 over the July 1996 level. Among reasons for unemployment, voluntary retirement, meaning people wishing to change jobs and so on, topped the list at 920,000, a year-on-year increase of 60,000; involuntary retirement, such as dismissal, accounted for 490,000, down 30,000; and school and university graduates who failed to find employment accounted for 90,000, down 50,000.

The unemployment rate in Japan climbed above the 3% level temporarily as a result of the recession brought on by the sharp appreciation of the yen after 1985 but then, with the economic recovery at that time, dropped back below 2.5% in 1990. The situation grew worse again after the collapse of the speculative "bubble" economy, however, and the unemployment rate has stayed above 3% since 1995. The unemployment rate is considered to be a lagging indicator of business trends; it is said to follow the actual business trend about six months or a year later. Despite the fact that the government labeled November 1993 as the bottom of the economic trough, and that at present the economy is in a period of recovery, the unemployment rate remains at a high level. In other words, a different phenomenon from usual recovery phases is taking place.

Background: Job-Changing and Restructuring
The main factors pushing up the unemployment rate are the rise in voluntary retirement by young people wishing to change jobs and the increase in the number of elderly people wanting to work. The unemployment rate in July was 6.2% for young people (aged 15-24 years) and 5.7% for elderly people (60-64 years), both much higher than the overall average.

Within the trend toward voluntary retirement among young people, especially noticeable is the tendency for young female graduates who took jobs reluctantly during the so-called "ice age" of graduate recruitment in 1994-96 to decide to change jobs after working their first year in the company. According to one survey conducted this spring by a job information journal for women, one in three women who desire to change their jobs belongs to the "ice-age" generation of recruits. Also, an increasing number of women are beginning to look for work again after once having left the labor force for marriage and childbirth. Such people believe that they have a chance to find work to their liking now that the economy is picking up.

The main cause of the rise in unemployment among elderly people is that more people, now that they can expect to live longer, are wanting to work even after getting old. At the same time, the increased unemployment of middle-aged and elderly people as a result of corporate restructuring in the wake of the collapse of the bubble economy is continuing.

According to a human-resource bank that handles the middle-aged and elderly generations, in usual recovery phases middle-aged and elderly people account for most voluntary retirement, but since December of last year the situation has reversed, and company-initiated dismissals because of bankruptcies, shrunken business operations, and so on are continuing. One expert points to the relationship between the economic situation and the unemployment rate, saying that "it is, after all, an economic recovery accompanied by restructuring, and middle-aged and elderly people, who under the seniority system have high wage levels, are the natural targets of restructuring."

More Fluid Job Market Demands New Attitudes
Although the unemployment rate in Japan may have climbed, it is still quite low compared with Western developed countries (for example, 4.8% in the United States, 5.8% in Britain, and 11.4% in Germany as of May 1997). Except for the period of confusion immediately after World War II, however, the rate in Japan generally stayed in the 1%-2% range until the mid-1990s, which meant a condition of nearly full employment. For this reason, a figure of 3.5% gives the impression of being an extremely high level indeed.

Also, internationally speaking, the definition of unemployment and social structures differ from country to country, so a simple comparison is far from possible. For example, in Japan people who have made arrangements to take a job within the following month are not deemed to be unemployed, but in the United States they are. The same is true for temporary layoffs. Corporate employment practices differ greatly, too. In times of recession, for example, Japanese companies give priority to maintaining employment and try to weather the storm by cutting bonuses and so on, whereas American companies tend to resort to layoffs and other forms of adjustment.

Even in Japan, however, the lifetime employment system, whereby people work for the same company from graduation to retirement, is being shaken. Surplus labor within companies--so-called "in-house unemployment"--is said to reach around 3% and threatens to push up the unemployment rate in the near future. It is also expected that the unemployment rate will be increased temporarily by such factors as the advance of deregulation and other structural reforms, the promotion of greater efficiency in corporate business, and employment adjustment. The construction industry, which until now has been a catchall for jobs, will likely be hit by the decline in public-works investment from this fiscal year.

Although the unemployment rate remains at a high level and many negative factors dim the prospects for improvement, however, it is also a fact that since 1996 the number of workers sought by companies has been gradually creeping up, too. Regarding this phenomenon, government authorities and private human-resource centers alike point to a mismatch in employment. Since the period of the bubble economy, they say, while many people who wish to change their jobs are looking for administrative work, many companies want specialized and technical staff. From now on, therefore, it will be important to establish a system that responds to the fluidity of employment, including, for example, the creation of an information system that links well the people looking for jobs and the companies looking for human resources, and the deregulation of occupational placement services.

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Trends in Japan Edited by Japan Echo Inc. based on domestic Japanese news sources. Articles presented here are offered for reference purposes and do not necessarily represent the policy or views of the Japanese Government.
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