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Japan's employment paradox
By Hussain Khan

TOKYO - The paradox of increasing unemployment and labor shortage is haunting Japan's labor market. While unemployment is growing, an aging population and the falling birthrate will push down economic growth unless the shrinking labor force is counterbalanced by higher productivity, by allowing more immigrant workers and by an increased number of female and older workers.

The Annual Report on the Japanese Economy and Public Finance for fiscal 2003 says there is the possibility of allowing more immigrant workers into the country, but adds that an inflow of immigrants on a scale that would make up for the declining working population would have a "major impact" on a nation that has always exhibited distrust and xenophobia towards outsiders.

In fact, the government just in recent weeks has mounted an intensive campaign to roust overstayers and deport them. Foreigners, known as gaijin, are often regarded as culturally inferior. Under the Tokugawa Shogunate, Japan remained a sakoku, a closed country. For centuries, no foreigners were allowed to enter Japan, and Japanese were forbidden from going out until US Commodore Matthew Perry famously forced open the borders in 1853 (see Japan ousts overstayers, November 11). 

"The aging and declining population alone has negative effects on macroeconomic growth," says the economic report, which is designed to provide an analysis of economic conditions for the Council on Economic and Fiscal Policy, a key policy-setting panel chaired by Prime Minister Junichiro Koizumi.

The report is yet another reminder of the list of challenges that Japan faces - especially as its fertility rate set a new record low of 1.32 in 2002 from 1.33 a year earlier. The nation's population is also aging at a rapid pace. The percentage of those over 65 years old stood at 18.5 percent as of October 2002 and is expected to rise to 28.7 percent in 2025. The report warned that the changing demographics will impact the social security system, and called for reforms aimed at creating sustainable public pension and health-care systems.

"Maintaining the current system would pose an excessive burden on the future generation, and the possibility is high that it would contribute to the lowering of economic vitality," the report indicates.

Japan's aging population and declining fertility rate threaten to destabilize a nation already hit by an unprecedented deflation. The population would shrink to 8,700 in 2700, to two in 3300 and finally to zero in 3387, according to a hypothetical estimate based on current birth and death rates by the National Institute of Population and Social Security Research, if steps are not taken to correct the situation.

The politicians' hesitation in creating a population policy stems from a skeleton in the closet. The cabinet approved a policy in 1941 that restricted women from working and imposed higher taxes on singles in a bid to boost the then-population of 72 million to 100 million in 20 years. This was part of Japan's goal of building its "Greater East Asian Co-Prosperity Sphere" through the colonization of neighboring Asian nations. That mistake haunts politicians today.

While falling birthrates are creating acute labor shortages, the young generation is not ready to accept "3K" jobs. A Japan Times report emphasizes the need in the following words: "Everybody talks about recession and unemployment now," according to Hiroaki Miyoshi, a senior economist at the Economic and Social Research Center of Mitsui Knowledge Industry Co Research Institute. "But demand for skilled foreign workers is as high as ever in the field of IT [information technology], as well as in the '3K' kinds of work in the field of manufacturing."

The term "3K" stands for kitsui (difficult), kitanai (dirty) and kiken (dangerous). The term came into vogue around 1990, when foreign workers from the Third World found themselves in great demand at construction sites and factories during the go-go days of the bubble economy while Japanese workers showed an increasing preference for white-collar jobs.

While unemployment is prevalent in Japan, the United States, Europe and other countries as manufacturing jobs are increasingly outsourced, paradoxically labor shortages are feared at the same time as birthrates fall. This contradictory phenomenon is expected to strengthen in coming decades.

Probably the only way to deal with the problem, says Steve Duscha, a labor specialist and partner in a California consulting firm who has studied labor problems internationally in Hong Kong and other global population centers, is to retrain low-level workers for jobs that exist.

"It is a significant and difficult undertaking, but it is the only solution," Duscha told Asia Times Online. "The training is for people who are already working in lower-level positions in industry, for the jobs that are in shortage. That training has to be in close cooperation with employers."

California labor unions and manufacturers, Duscha said, have retrained some 600,000 workers in the past 20 years as the state's labor market, one of the most fluid in the world, undergoes continuing, rapid and wrenching change.

Stratified labor conditions such as Duscha describes, and wages higher than those prevalent in Europe, drove emigrants overseas to the United States, often to join the idle people at tens of thousands of factory gates every morning of the year, or lounging at employment offices. No records yet compiled have ever found the unemployed reduced to zero. Employers have lacked people and at the very same time people have lacked work.

An explanation of this paradox is fundamental to intelligent discussion of conditions in the labor market. It is certainly true that surplus and deficit cannot steadily coexist in the commodity market of the whole nation. There cannot be both surplus and deficit wheat at the same time. How, then, was it possible to have deficit and surplus co-existent in the labor market?

From 1 million to 6 million workers were idle in the United States at all times between 1902 and 1917, exclusive of farm laborers, according to sociologist Hornell Hart. The least unemployment occurred in 1906-07 and in 1916-17, while the most occurred in 1908 and in 1914-15. The average number unemployed has been 2.5 million workers, or hardly 10 percent of the active supply. In 1907 and 1917, the demand for labor exceeded the normal supply, and additional workers were called in, as indicated by the bumps in the supply line in these years.

Urban industries require a working labor-margin of at least 4 or 5 percent, or 1 million to 1.5 million workers. These are the men and women who, though normally employed, are temporarily not working because of sickness, seasonal fluctuations in their trades, changing from one position to another, strikes, shortage of material or transportation facilities, and so forth. Hence there is the paradox of a million and a quarter unemployed at the same time with an unprecedented demand for labor.

Even during World War I, according to weekly reports of the Ohio Free Labor Exchange, which has maintained public employment offices in 22 cities, workers were idle at all times in 1917 and 1918 despite the withdrawal of men for military service, net immigration reduced to a fraction of the prewar period, and the strong demands of war industries for workers. Even in the months just before the armistice, when tens of thousands of workmen were needed, there was a labor reserve.

The total for 1918 shows that employers called for 779,972 people, that 443,782 workers applied for employment, and that 283,640 were actually placed. This leaves a surplus of 160,142 applicants who could not find work despite the fact that employers requested about 500,000 more men and women from the offices than they obtained. The figures for 1917 and 1916 show a slight surplus of offers for employment over the number of applicants seeking employment. But in each year the number of persons placed in employment was considerably smaller than the number who applied for work.

These facts show that no matter how strong the demand for workers, some are nevertheless out of work. Some are out of touch with employment opportunities, some are continually passing through jobs rather than into them. Even when employers were calling for many more men than were seeking employment, there were more persons in some occupations seeking work than there were openings for them.

One more reason for persistent labor surpluses was the decentralized character of the US labor reserve. Typically, the US labor supply has not had one reserve but thousands of them, a decentralized labor supply. Each city has had a multitude of groups of laborers.

It is not strange that a policy of dependence on an ever-present labor reserve should have developed in the United States. Immigration provided a supply of people to replenish local labor reserves continually, and employers found it easier to attract plenty of labor to each locality so that they could have it when they needed it than to provide labor market machinery that would find labor when it was needed.

Immigration has played an important part in this matter by providing human material for the labor reserves. But these surpluses are not entirely due to immigration. It is debatable whether immigration can be held chiefly responsible. Reserves have developed in England as well as in America. They are largely due to the unorganized labor market and to fluctuations of production.

"An excess of labor over demand appears to be a normal condition in the skilled and organized trades," says the economist William Henry Beveridge, the leading British authority on employment. "It is hardly necessary to argue at length that the same condition is found in the unskilled and unorganized occupations. The glut of labor in them is notorious. Has there ever, in the big towns at least, been a time when employers could not get practically at a moment's notice all the laborers they required?"

Hussain Khan holds a master's degree in economics from Tokyo University and has worked in Japan as an equities analyst. He is an independent Tokyo-based analyst on current affairs and economic issues for various newspapers and magazines. E-mail:

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Nov 21, 2003

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