The 2001 White Paper on the Labour Economy: A Summary of the Analysis

Vol.40-No.9 September 1,2001

On July 6, 2001, the Ministry of Health, Labour and Welfare submitted its 2001 White Paper on the Labour Economy to the Cabinet and released it to the public. The White Paper presents an analysis of recent trends and changes in the labor market, with particular focus on the year 2000. In addition, it presents an analysis of the impact of the rapidly developing information technology (IT) revolution on employment and ways of working, with reference to the situation in the U.S.

1.0 Chapter 1: The Current Situation of the Labor Economy
The employment situation in 2000 remained serious. The unemployment rate was 4.7 percent, which is equivalent to the record high of the previous year. However, reflecting a moderate improvement in economic conditions, there were signs of improvement in the number of job openings and the number of employees. Special features of the labor economy in 2000 were as follows:

(1) The number of new job openings since summer 1999 increased compared with the previous year. In addition, both the ratio of new job openings to new job applicants, and the ratio of active job openings to active job applicants improved (Figure 1). The sense of excess employment eased, and the proportion of establishments carrying out employment adjustment was reduced.

(2) The number of employees continued to increase from May onwards, on a year-on-year basis. The number of employed people began to increase in October. However, most of the increase was due to an increase in temporary jobs such as part-time work. As a whole, the improvement was weak.

(3) Under these circumstances, the unemployment rate remained high, reaching a record high of 4.9 percent for two consecutive months, in December 1999 and January 2000 (Figure 2). This is attributable to a substantial decrease in self-employed workers and their family workers; mismatching in the labor market; and an increase in new job seekers who were attracted by signs of improvement in the employment situation, entered the labor market as unemployed persons.

(4) With the business recovery coming to a standstill from late 2000 into early 2001, the tendency towards improvement in the employment situation also halted. In the near future, the write-off of non-performing loans prodded by the government's emergency economic measures may affect the employment level. Steps to minimize such negative effects were accordingly incorporated in those emergency measures.

The total cash earnings by workers increased for the first time in three years, although the improvement in wage levels lagged that in companies' profits. Scheduled cash earnings increased. Non-scheduled cash earnings increased substantially, because of an increase in non-scheduled working hours. However, special payments decreased.

The total number of hours worked in 2000 increased for the first time in four years. This reflected increases in scheduled and non-scheduled working hours, largely due to the moderate recovery of the economy.

Actual consumption expenditure in workers' households declined for the third consecutive year in both nominal and actual terms compared with the previous year. This reflected the sluggish growth in real incomes. The desire to consume was recovering, though at a very slow speed, leaving the average propensity to consume at a low level.

2.0 Chapter 2: The IT Revolution and Employment
2.1 Features of the IT Revolution
The rapid development of information technologies, referred to as the IT revolution, is expected to propel Japan's economy forward to a new stage of development, and bring considerable changes to our lifestyles. In line with this, the government is beginning to actively promote development of the IT revolution, and has set up an IT Strategy Headquarters within the Cabinet.

The IT revolution is often compared with similar episodes in the past such as the Industrial Revolution. However, past technological revolutions mainly impacted on labor and employment in the manufacturing sector, whereas the present revolution affects labor and employment for white-collar workers.

2.2 The IT Revolution and Employment in the U.S.
The United States has been a leader in the IT revolution. It has continued to increase its GDP since 1992, substantially increasing the number of employees in the process. It has successfully achieved both economic growth and employment expansion. At the same time, however, the rate of dismissals has increased, particularly among white-collar workers, including workers in managerial posts. This reveals, if anything, a decline in employment stability.

The gap in annual average incomes among different educational levels (for males) has been widening, with the tendency corresponding with the varying proportions of people who own personal computers among people at different educational levels. This gap, which is probably attributable to different speeds of adapting to the new information technologies, has caused the serious problem referred to as the “digital divide.”

Consequently, in the U.S., importance is attached to providing learning opportunities for people of all age groups as an employment measure to match the IT revolution. In addition, the new information technologies are being put to use to build networks to deal with job introduction and vocational training.

2.3 The Impact of the IT Revolution on Employment
Following the definitions set forth in Digital Economy 2000, a report by the U.S. Department of Commerce, the number of workers in the IT industry in Japan in 1999 was estimated to be 3.64 million, or 6.8 percent of the total number of workers. The percentage exceeds that in the U.S. (5.1%), where 3.28 million are employed in the IT industry (Figure 3).

In Japan, the manufacturing sector accounts for most of the employment in the IT industry. However, the rate of employment growth has been conspicuous in the service sector, and in specialized and technical work, which provides evidence of the increasing importance of software and sophisticated technology.

The estimated impact of the IT revolution on the quantity of employment throughout the 1990s, including secondary effects, was the creation of more than two million jobs. The service sector, in particular, saw a growth in job places. The growth in this industry is not confined to jobs related to the IT industry, but occurred in the sector as a whole (Figure 4).

2.4 Changes in the Nature of Jobs Due to the IT Revolution
The IT revolution has an impact on the individual workplace and the nature of jobs. It has reduced routine office work and increased creative and specialized work. At the same time, performance-based evaluation of employees is progressing. So far, the skills and abilities related to information technology have not produced substantial gaps in wages and promotions among workers, but they are likely to do so in the future.

While many firms consider that workers, particularly the middle-aged and older, have insufficient command of personal computers, the skills that most firms require are actually basic knowledge. Therefore, many firms believe that even workers in the older age groups are able to acquire such knowledge if they spend a certain amount of time on learning. As more firms have adopted information technologies, recognition of this fact has become stronger (Figure 5).

There is concern that advances in information technologies may accelerate the crumbling of the hierarchical personnel system within firms, flattening it so that mid-ranking managerial posts are no longer needed. In fact, firms adopting a higher level of information technology are more likely to have a “flat” organization. This suggests that information technologies can serve as an effective means for reforming organizations. However, there is no correlation between the evolution of information technologies and a decline in the number of mid-ranking managerial posts. Rather, such workers are increasingly being required to exercise more creativity and to play more competent roles in the workplace.

In fact, the IT revolution does cause a decline in the number of personnel, particularly those engaged in intermediate production. However, in most cases, the employment adjustment is carried out by means of attrition, and firms make possible efforts to take responsibility for employment maintenance.

2.5 Human Resource Development to Match the IT Revolution
With information technologies steadily advancing, workers are increasingly required to show “information literacy.” This is defined as a fundamental ability to use computers and other technologies to collect, use, analyze and evaluate information. The government has been promoting human resource development to cope with the evolution of information technologies by setting up the e-Japan Priority Policy Program. At the same time, workers are expected to have practical ability in applying such information technologies in actual business, backed up by a profound knowledge and experience.

The demand for IT workers has been increasing, but the supply is still insufficient. Accordingly the rate of successful responses to job advertisements for IT engineers has been falling.

Many IT-related firms rely on recruitment throughout the year for workers who can immediately contribute to the firm. Many IT engineers, for their part, have already experienced job switching and are content with the idea. The engineers in high demand are seen as switching their jobs as a means of their career formation.

Nevertheless, the number of IT workers with a certain level of experience is limited. Moreover, many firms believe that the skills and abilities of engineers will be maintained and even improved, as they become middle-aged and older (Figure 6). Consequently, it is increasingly important to assist systematic job training and organized career development.

Further, the development of information technologies has itself produced new and efficient training methods, such as web based training (WBT). WBT is a training method on the Internet that provides everything required for learning and ability evaluation, including learning materials, problem sets and so on. Further developments in WBT can be expected.

2.6 Diversification of Employment Patterns Related to the IT Revolution
The information technology revolution enables various new working styles such as tele-work: a working style freed from restrictions of time and location by using the Internet network, and work at home. It also makes it easier for workers with responsibilities for elderly or disabled family members or housework to participate in the labor market. In 2000, the total number of tele-work employees (including working at home) was estimated at 2.46 million, while the total number of workers who work in a small office or home office (SOHO) environment and do not hire other workers, was estimated at around 174,000. Some 90 percent of tele-work employees are male, and such workers are generally satisfied with their working style. On the other hand, many workers in a SOHO environment are females who have children to take care of, or people who are responsible for housework. There is a need to improve the security of such jobs and establish a business environment more favorable to fair dealings.

In addition, non-regular employment such as part-time or arubaito (side-job) employment and outsourcing is increasing, due to the progressive standardization of job duties with the advance of information technologies.

2.7 The Labor Market and the Ongoing Information Technology Revolution
With the IT revolution still in progress, it has been argued that Japanese-style employment practices should be revised. However, each nation has its own unique employment system, and Japan's system has, in fact, coped smoothly with structural change during previous periods of high economic growth and technological innovation. Amidst the ongoing progress in information technologies, firms themselves are attaching importance to the maintenance of employment. However, it is also necessary for firms to reconsider their conventional ways of doing business and their traditional organization. Thus, it will be necessary, while taking advantage of the positive aspects of the Japanese employment system, to establish flexible internal labor markets (i.e. labor distribution mechanisms within firms, whereby their management and practices, including re-allocation, promotion and related wage management, serve the functions of a labor market).

At the same time, smooth labor mobility in the exterior labor market is essential. For this purpose, it is important to get rid of mismatches in the market brought about by differences in age, working conditions, abilities and experience. Importance should also be attached to the provision of accurate information on the labor market, appropriate vocational training, the strengthening of the labor supply-and-demand adjustment system in the private sector, as well as the strengthening of this adjustment mechanism using information technologies.

In addition, for local economies across the country to benefit from the information-technology revolution, the securing and training of human resources will be needed.

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Summary of White Paper on Labour INDEX

(1)	The number of new job openings since summer 1999 increased compared with the previous year. In addition, both the ratio of new job openings to new job applicants, and the ratio of active job openings to active job applicants improved (Figure 1). The sense of excess employment eased, and the proportion of establishments carrying out employment adjustment was reduced.
(2)	The number of employees continued to increase from May onwards, on a year-on-year basis. The number of employed people began to increase in October. However, most of the increase was due to an increase in temporary jobs such as part-time work. As a whole, the improvement was weak.
(3)	Under these circumstances, the unemployment rate remained high, reaching a record high of 4.9 percent for two consecutive months, in December 1999 and January 2000 (Figure 2). This is attributable to a substantial decrease in self-employed workers and their family workers; mismatching in the labor market; and an increase in new job seekers who were attracted by signs of improvement in the employment situation, entered the labor market as unemployed persons.
(4)	With the business recovery coming to a standstill from late 2000 into early 2001, the tendency towards improvement in the employment situation also halted. In the near future, the write-off of non-performing loans prodded by the government's emergency economic measures may affect the employment level. Steps to minimize such negative effects were accordingly incorporated in those emergency measures.