Vol.36-No.10 October 1,1997
On June 27, 1997 the Ministry of Labour submitted its 1996 White Paper on Labor to the Cabinet for publication approval. This year's white paper analyzes trends in Japan's labor economy in 1996 in Part I. Part II is titled "Employment and Wages in Structural Transformation and Coping with an Aging Labour Force." It clarifies likely changes which are beginning to occur in the demand for labor and the distribution of income, and issues concerning employment stability and the improvement in working life. It considers measures to be taken in order to maintain the vitality of Japanese society in the years to come, and to enable older citizens to lead meaningful working lives in the context of the aging society which Japan has become.
2.1 Unemployment
The seasonally adjusted unemployment rate reached 3.5 percent in the middle of the year, the highest level recorded since 1953 (the earliest year for which the Ministry had comparable figures). The rate declined slightly in the latter half of 1996, but averaged a highest-ever level of 3.4 percent for the year, with the number of the unemployed standing at 2.25 million (Figure 1). The rising unemployment rate during the current recovery reflects two factors. First is the low demand for labor. Second is structural change and the growing mismatch between the supply of labor and demand for labor.
2.2 Ratio of Active Job Openings to Active Job Applicants
The ratio of active job openings to active job applicants rose moderately. This reflected a leveling off in the number of new job seekers while the number of new job offers grew as enterprises experienced improved business conditions. The ratio averaged 0.70 in 1996, above the 1995 figure which was 0.63, the first move upwards in six years.
2.3 Number of Employees
An annual average of 53.22 million persons were employed in 1996, up from the previous year. This was due to the fact that a smaller decline in the number of employees in manufacturing than in previous years did not offset the slight increases registered in other industries.
2.4 Wages
Wages grew at an annual rate of 1.1 percent in 1996, the same rate as in 1995 due to the small growth of regular earnings. Non-regular cash earnings (e.g. from overtime) grew a bit more. Special cash earnings (e.g. bonuses) recovered from a drop in 1995. Real wages rose 1.1 percent over the year showing a smaller growth than in the previous year.
2.5 Working Hours
Working hours at establishments with 30 or more employees stood at 1,919 in 1996 a slight increase from the previous year. Scheduled working hours totaled accounted for 1,774 hours, with overtime and other non-scheduled would accounting 145 hours (an increase reflecting the modest recovery of the nation's economy).
2.6 Industrial Accidents
The number of industrial injuries (deaths and injuries requiring absences of four or more days from work) continued to decline in 1996. The total number of such incidents was 162,862, a decrease of 4,454 (2.7%) from the year before. Deaths decreased 2.1 percent from 2,414 to 2,363 in 1996. The previous year had witnessed a marked increase in deaths due in part to the effects of the Great Hanshin-Awaji Earthquake.
2.7 Prices and Household Expenditures
The CPI rose 0.1 percent in 1996 after falling 0.1 percent fall in 1995. The annual household income of households headed by rose 1.5 percent in real terms, a larger growth than that recorded in 1995. Workers' household real expenditures were up 0.6 percent from 1995, the first increase in four years.
2.8 Trends in Industrial Relations
In the 1997 shunto (spring wage negotiations), labor and management settled on a higher wage increase than in 1996 in both the amount and the rate. In the heavily unionized industries in large enterprises the following wage hikes were agreed upon: steel, a 1.56 percent increase; electrical machinery, a 3.17 percent increase (for the standard 35-year-old worker); and auto mobiles, a 2.96 percent increase.
3.1 Long-term Trends in Labor Demand
The nation's demand for labor at the macro-economic level has been increasing a steady pace over the long run. Three factors help to explain this growth. One is the rapid expansion of the economy before the first oil shock. Since then there has been the elastic value of real gross domestic product (wages) as the value of the yen rose. Third has been the ability of the economy to distribute the fruits of relatively high growth between employment and higher wage income in a more balanced manner than has occurred in Europe and the United States (Figure 2). However, if wages continue to rise relative to the cost of capital, a lower growth rate in the years ahead may well be accompanied by a decrease in the demand for labor.
3.2 Internationalization and Industry-wise Employment, Wages and Productivity
Tertiary industry becomes progressively more important in Japan's economy. Employed persons in manufacturing decreased in the first half of the 1990s as changes occurred in the composition of Japan's trade owing to shifts in the international division of labor. When compared with the United States, wages in Japan rose not only in low wage industries, and improvements in both employment and real wages was achieved across the board. However, in manufacturing, productivity rose unevenly from sector to sector. In the non-manufacturing industries productivity did not improve at the rate being achieved in manufacturing (Figure 3). This situation has been reflected in the gap between domestic and foreign prices. In the sectors with a relatively low improvements in productivity, international competition will be felt, and the pressure to adjust employment and wage levels will intensify. Accordingly, the promotion of labor mobility from the low-productivity sectors to the quickly developing sectors with higher levels of productivity will be an important policy concern in the years to come.
3.3 Deregulation and Employment
As deregulation occurs, prices, business size and the number of employees will invariably be affected. This is particularly true in retail and telecommunications. To promote deregulation, it is necessary to ensure that workers in organizations and industries characterized by low productivity find work in the newly emerging sectors. Mechanisms to match labor supply and demand and the promotion of training schemes will be important to ensuring that they continue to have employment opportunities.
3.4 Technological Innovation and Variation Employment Conditions
Technological innovation (including the growing use of information) and the use of more non-regular workers (particularly part-time workers) are having a great impact on employment, organization and personnel management practices at many firms in Japan. Even so, employees such as systems engineers are not necessarily well-treated. The increasing use of part-time workers is geared to reduce wage costs, and the wage gap between the non-regular and regular workers is increasing. To improve the utilization of the labor force, the wage system needs to be altered so that wages are more in line with the ability and performance of employees. It also calls for the appropriate provision of opportunities for skill acquisition.
3.5 Income Distribution in Japan
While the wage gap is widening, the size of the gap in Japan is not as pronounced as that found in the other major industrialized economies, and the overall disparity in wages is relatively small. Moreover, the level of inequality in the distribution of income as seen in surveys of household income and expenditure in Japan is not greater than that found in the United States or Britain. The disparity in annual income between income groups also remains relatively small in Japan. The recommended changes to the wage system will likely result in some increase in wage disparity in the years ahead. However, it is important to focus on the fact that an environment which allows workers to develop their own abilities will result in greater overall productivity and rising wages as a whole.
3.6 The Aging of the Japanese Population and the Employment of the Elderly
Until the 1990s the labor force participation rate for males in their early sixties had long been declining along with (i) the drop in the percentage of self-employed workers in the nation's workforce, and (ii) the rise in non-employment income from pensions and other sources. Since the latter half of the 1980s the rate has been bolstered by a tightening of the labor market owing to the bubble economy and the extension of the mandatory retirement age. By international comparisons, however, the nation's labor force participation rate for older males has continued to be high. This is attributable to the fact that the willingness of older Japanese to work is strong by international standards and the tendency of European nations and the United States to promote the early retirement of the elderly as a means of dealing with the their serious youth employment. Nevertheless, the ratio of active job openings to active job applicants for the elderly in Japan is considerably lower than that for those in the other age brackets, and the unemployment rate for men in their early sixties is more than double the figure for those in the other age brackets.
3.7 Current State of Personnel Management and Retirement
Many firms in Japan currently have a mandatory retirement age of 60. However, the proportion of those who are actually employed in an extended employment scheme (as opposed to a re-employment scheme) after the compulsory retirement age is lower at the larger enterprises. Moreover, the job title and associated responsibilities are more likely to change for retired employees who are retained in the large firms. This suggests that larger enterprises are less likely to offer their retirees a work environment in which they can continue to actively use their professional careers (Figure 4).
3.8 Changes in Personnel Management
The gradient of the age-wage profile curve for middle-aged and older workers has become less steep as the Japanese population ages. At the same time, wage disparity has increased as a growing number of firms move to introduce wage systems which emphasize ability and performance. In this regard, the wages of older workers before and after retirement are smaller for re-employed older workers than they are for those whose employment tenure is extended. In the years to come, properly evaluating the ability of older employees and developing wage systems which effectively reward them for their skills will be necessary in a review of the wage system which will also affect young and middle-aged workers.
3.9 Assuring Job Opportunities for the Elderly
Older workers now experience a diverse range of options when it comes to employment. The options range from full-time employment to full-time retirement. Many older workers, particularly those aged 60 to 64, want to work part-time because of health constraints and income problems. More opportunities for short-time employment are necessary, although the emphasis should be placed on full-time employment (Figure 5). Furthermore, in order to have a society in which 65-year-olds are active members and the elderly can actively utilize their hard-won knowledge, skills and experience, administrative bodies need to provide a range of counseling and support services as well as opportunities for workers to develop new skills. There is also a need to ensure that employment is adequately linked to a pension program so that workers may have more options to choose from when planning for their life in old-age.
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