No. 5 — February 9, 1996


Weekly Review

--- by Jon Choy

Setting the tone of his administration, newly elected Prime Minister Ryutaro Hashimoto and his cabinet have been issuing a stream of upbeat economic policy statements based on improved readings of some gauges of the economy's performance. However, one important indicator still is in the red zone: Japan's unemployment rate remained at a record-high 3.4 percent in December. That helped to push 1995's average unemployment rate above the 3 percent mark for the first time in postwar history. The Hashimoto administration, which clearly hopes that unemployment rates this year will not repeat 1995's average of 3.2 percent, is working on contingency plans on the chance that the economy might continue to sputter. The new government favors one issue close to the hearts of workers: a solid pay raise for this year's spring wage offensive or shunto. Spotty profit results and continued corporate efforts to restructure, however, have shattered the usually unified management stance on wages, making this year's shunto particularly interesting.

New Ministry of Labor data reveal that the number of unemployed workers topped 2.1 million in December, 19.2 percent or 340,000 more than the same month the year before. The number of employed Japanese also dropped on the same basis by 110,000 or 0.2 percent to just under 64 million. MOL calculations for the 12 months ending in December yielded a monthly average of a little less than 64.6 million workers holding jobs — up just 0.1 percent from 1994 — and 2.1 million jobless — an addition of 180,000 people to the ranks of the unemployed last year. Manufacturing-sector employment continued to weaken in December for the third consecutive month, dropping 2.7 percent. Even more troublesome to policymakers was the first December decline since 1985 in nonfarm employment by large companies (500 workers or more). Labor officials worry that corporate downsizing is likely to continue in 1996.

Japanese women and recent graduates are bearing the brunt of the surge in unemployment. Female unemployment averaged 3.2 percent in 1995 compared with 3.1 percent for men — both record levels. Unemployment among workers in the 15-24 age group climbed 0.7 percentage point last year to an all-time-high 6.1 percent, compared with 3.8 percent for workers 25 to 34 years old and 2.2 percent for those 35 to 44 years old. Although the Labor Ministry report attributed some of the unemployment among entry-level workers to voluntary resignations by young entrepreneurs, hiring cutbacks or freezes by major Japanese firms likely played a much bigger role.

MOL analysts pointed to one bright spot in the December figures: the ratio of job openings to applicants improved for the third straight month, rising 0.02 percentage point to 0.65. While job openings in the manufacturing sector dropped a seasonally adjusted 2.2 percent in December, openings in the service sector jumped 13.2 percent, followed by 8.4 percent in the transport and communications field, 5.9 percent in construction and 5.1 percent in the retail and restaurant trades. Ministry analysts stressed that the unemployment rate historically has moved in the opposite direction from the jobs-to-applicants ratio. Yet, they also are concerned that some workers are becoming discouraged by their futile search. Even though the number of job seekers rose 5.8 percent for all of 1995, their ranks fell 0.9 percent in December, the second decline in as many months.

One particularly troublesome spot is Kobe, which was devastated by a major earthquake in January 1995. Officials estimate that one year after the quake about 90,000 people still live in 48,000 temporary housing units and that at least one person in 55 percent of these units still is unable to find a job. As the quake anniversary rolled around, the Japanese media focused attention on such victims as a young mother with an elementary school-age son. Given that she is unlikely to be hired as a construction or an industrial worker — the most common jobs available during reconstruction — she checks the papers daily for job openings. In the meantime, as she gets by washing dishes part-time, her disappointment and anger toward the central government for not helping her to find a permanent job is strong.

Cabinet officials and bureaucrats fully are aware of these and similar job anxieties. The Economic Planning Agency's first economic report of 1996 removed references to economic weakness but kept phrases indicating that the economy remained basically at a standstill. While corporate capital investment plans are looking up, according to EPA, the employment situation — and related consumer tight-fistedness — could dampen any nascent recovery. At a January 30 press conference EPA director general Shusei Tanaka admitted that the job market remains broadly depressed but, he added, "I believe we can hope for a gradual recovery [in employment conditions] by steering the economy well, including gaining approval of the [FY 1996] national budget."

In addition to action on the budget the Hashimoto cabinet is pushing two policies that could alleviate unemployment pressures. Finance Minister Wataru Kubo recommended January 13, "The government should consider measures which will lead to job creation," such as facilitating "loans to small and medium-sized companies to help their growth without imposing on them the burden of high interest rates." Small firms not only employ the majority of Japanese workers but also have suffered the most bankruptcies during the current slump. Labor Minister Takanobu Nagai waded straight into the opening moves of this year's shunto. Prefacing his January 30 remarks by noting that "[e]nhancing purchasing power is an important means to stimulate the economy," he said that companies enjoying profits should give their employees a solid wage hike. Although the Labor Ministry officially remains neutral during the annual nationwide wage talks, in the past several years the labor minister in office has pushed for a generous settlement. While such jawboning has been ineffectual before, Labor Minister Nagai's efforts may have more effect this year if management solidarity fractures further.

In this year's wage talks labor unions have set ¥130,000 ($1,300 at ¥100=$1.00) as the target for the hike in monthly pay; that amount would be in addition to the regular cost of living increases. Nikkeiren (Japan Federation of Employers' Associations) has taken a hard line for the second straight year, arguing that low productivity growth, high unemployment and falling consumer prices rule out either an inflation-related adjustment or a raise in monthly wages. Maintaining employment and preventing deflation should be management's top goals in wage talks this year, asserts Nikkeiren head Jiro Nemoto. This tough stance, however, has run into resistance from a surprising quarter. Many top Japanese firms — including leading steel, electronics and automotive companies — are arguing that the lockstep shunto bargaining process has become unsuited to current competitive realities. There seems to be growing acceptance among executives of the concept that firms should make wage offers based on their firm's particular situation. Some executives are concerned that blindly following wage settlement patterns could endanger their company's long-term reputation and health. If a firm is perceived as shortchanging employees while profits roll in, some executives worry, potential recruits from among top school graduates as well as consumers may begin to shun that company. Mr. Nemoto has tried to reinterpret his association's stance, which reflects traditional aims, by arguing that it is a macrolevel position. At the microlevel, he now says, firms indeed should have the freedom to tailor wage deals to their unique circumstances. Labor Minister Nagai clearly hopes that Japan's leading firms, which are enjoying better profits, will break with the shunto tradition, share their good fortune with employees and, perhaps, give consumer confidence a much-needed boost.

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

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