No. 21 — May 26, 2000

 

Weekly Review

TOKYO HOPES TO TRADE YEN FOR JOBS
--- by Jon Choy

In keeping with Prime Minister Yoshiro Mori's pledge to continue the economic policies of his predecessor, the government has put together a second package of measures designed to combat Japan's rising unemployment rate. Echoing the initial June 1999 jobs plan (see JEI Report No. 23B, June 18, 1999), this year's scheme provides money for direct job creation as well as for the retention and the retraining of workers at smaller businesses. With the jobless rate near 5 percent in recent months, the package also beefs up the national unemployment compensation fund. Pointing to the meager results of the first effort, however, analysts are skeptical about the impact of the new plan.

The June 1999 jobs framework broke new ground because it ordered central and local governments over the following two years to hire up to 300,000 displaced workers for periods as long as 24 months. It was the first direct employment-generation program launched by Tokyo in postwar history. Another part of the ¥542.9 billion ($4.9 billion at ¥110=$1.00) plan was to encourage high technology firms in emerging fields to boost their payrolls by as many as 150,000 workers. These two direct hiring initiatives, the government calculated, indirectly would lead to another 200,000 to 300,000 new hires, pushing the package's job-creation total as high as 750,000 positions by March 2002. To fund the program, the Diet approved a ¥519.8 billion ($4.7 billion) supplemental budget (see JEI Report No. 27B, July 16, 1999).

According to the results of a recent Ministry of Labor investigation, however, this plan was not on the right track. MOL reported that the scheme had created just 75,000 jobs by the end of April — only one-tenth of the final goal. Nor did the various programs prevent the seasonally adjusted unemployment rate from reaching a new all-time high in March, when the share of the country's labor force that lacked gainful employment was 4.92 percent, up from February's then-record 4.85 percent mark (see JEI Report No. 15B, April 14, 2000). Actual unemployment also reached a new peak in March, totaling 3.5 million, 70,000 more than the old record set in April 1999. The number of people with jobs was 63.5 million, roughly 390,000 less than the year-earlier level. The Labor Ministry also said, however, that in March, the ratio of job offers to job-seekers improved, rising to 53 openings for every 100 applicants.

The surge in joblessness in March was due in part to seasonal factors — namely, the end of the academic and business years, which customarily swells the pool of people looking for work. The government noted that now is a particularly tough time for graduates regardless of the type of educational institution attended. A record percentage of seniors said that they had not lined up a job. Another negative factor is corporate restructuring, which is adding to the number of middle-age and older workers looking for new jobs (see JEI Report No. 20A, May 19, 2000). In its investigation of the government's 1999 job-creation plan, however, the Labor Ministry concluded that the biggest roadblock to hiring was a mismatch between job-seekers' skills and those sought by employers.

Tokyo's recast jobs plan, approved by the cabinet May 16, takes direct aim at this problem by offering incentives to small and midsize companies to hire and retrain up to 100,000 displaced workers over the next 12 months. With the government's home health-care assistance arrangement now in place, the new framework includes money to hire 30,000 caregivers. Local governments will be directed to offer temporary jobs to another 150,000 of the unemployed, while Tokyo plans to subsidize 70,000 positions in such growth industries as health services. If all goes according to plan, the new initiative will help 350,000 people start pulling down paychecks within the next year.

In reworking its jobs program, the government made several changes to the existing framework. For instance, instead of calculating job subsidies on a sliding scale of ¥400,000 to ¥700,000 ($3,600 to $6,400) for workers hired between the ages of 30 and 59, a flat ¥700,000 ($6,400) will be paid and the age parameters abolished. Thus, companies hiring recent college graduates can qualify for money. Giving the same group another boost, the government will subsidize three to six months of training in connection with private-sector jobs. The latest version of the plan also specifies 15 "growth" areas, including the Internet, software and communications industries.

On another front, the May 16 plan commits Tokyo to create a ¥60 billion ($545.5 million) reserve from which to pay unemployment assistance if the jobless rate breaks through the 5 percent barrier. This move seemingly conflicts with the Diet's April 28 approval of amendments to the Employment Insurance Law that will raise workers' unemployment insurance premiums and cut benefits. Effective April 1, 2001, employees will be required to contribute 1.2 percent of their paychecks to the national unemployment insurance fund compared with the current rate of 0.8 percent. At the same time, Tokyo will trim benefits by up to 20 percent and limit the eligibility period to 180 days.

Analysts are debating the significance of the March unemployment data and the government's new jobs-creation plan, both in terms of the economy's near-term course and the June 25 elections for the Diet's lower house. Although male unemployment was at an all-time high of 5.2 percent in March and the rate for women was not far behind at 4.6 percent, many experts predict that the month's record jobless rate of 4.9 percent-plus will be broken shortly. That certainly will not help the Liberal Democratic Party and its partners when voters go to the polls. Neither will the limited impact to date of the government's year-old jobs program. However, if, as some observers argue, corporate downsizing is beginning to show results and other economic indicators may be bottoming out, LDP lawmakers might be able to persuade votes that unemployment soon will peak, in part due to Tokyo's new and improved jobs program.

The views expressed in this report are those of the author
and do not necessarily represent those of the Japan Economic Institute

*** JEI Report will not be published June 2, 2000 because of the Memorial Day holiday. ***
*** The Next Issue will be dated June 9, 2000 ***
 

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