Japan’s part-time workers need tighter reforms

A job seeker walks past a corridor of a commercial building in Tokyo, Japan, 28 August 2014 (Photo: Reuters/Yuya Shino).

Author: David Murakami, University of Oxford

On 4 September 2019, at a speech to Japanese business leaders in Hakodate, Bank of Japan (BoJ) Policy Board Member Goushi Kataoka outlined the challenges currently facing the Japanese economy: increasing global economic policy uncertainty; slowing domestic business fixed investment; continued sluggish inflationary expectations; and a Japanese labour market in need of improvement.

Most notable in Kataoka’s speech was the latter. Japan’s headline unemployment rate recently fell to 2.2 per cent. This should indicate labour market tightness and lead to wage and price increases. But according to the BoJ in its July 2019 Outlook Report, year-on-year consumer price index changes are forecast at 0.8, 1.2 and 1.6 per cent for fiscal years 2019, 2020 and 2021 respectively. This is below the BoJ’s 2 per cent stable inflation target.

Kataoka and the BoJ believe that the headline unemployment figure is misleading — that the labour market has excess slackness. Specifically, Kataoka argues that the labour market will tighten only if the following conditions are met: an increase in the male labour force participation rate; a decline in male unemployment; and an increase in female working hours.

Kataoka and the BoJ’s analysis seems correct. The labour force participation rate has been declining since the early 1990s — it rebounded after 2012, but remained lower than the start of the 1990s. The long-term decline has been driven by Japan’s ageing population, with the rebound coming from a greater number of women and pensioners entering (or rather, re-entering) the workforce. According to Kataoka, herein lies the source of labour market slackness. Due to labour market reforms made by the Japanese government in 1999 and 2004, firms have been replacing full-time workers with cheaper part-time …continue reading