Economic Analysis Series No.168
Empirical Analysis in Connection with Job Creation and Unemployment

Mar, 2003
Yuji Genda
(Senior Visiting Fellow, Economic and Social Research Institute, Cabinet Office;
Associate Professor, Tokyo University)
Hiroshi Teruyama
(Visiting Fellow, Economic and Social Research Institute, Cabinet Office;
Associate Professor, Kyoto University)
Souichi Ohta
(Visiting Fellow, Economic and Social Research Institute, Cabinet Office;
Associate Professor, Nagoya University)
Ryo Kambayashi
(Visiting Fellow, Economic and Social Research Institute, Cabinet Office;
Associate Professor, Tokyo Metropolitan University)
Mamiko Ishihara
(Visiting Fellow, Economic and Social Research Institute, Cabinet Office;
Instructor, Josai University)
Yuji Senuma
(Economic and Social Research Institute, Cabinet Office;
Tokyo Regional Taxation Bureau )
Kazuhiro Sasaki
(Economic and Social Research Institute, Cabinet Office )
Kentaro Abe
(Economic and Social Research Institute, Cabinet Office )
Takayuki Kusajima
(Economic and Social Research Institute, Cabinet Office ;
Toyota Motor Corporation )
Taku Morito
(Economic and Social Research Institute, Cabinet Office ;
Resona Bank, Limited )

The full text is written in Japanese.

(Abstract)

1. Background and Purpose

The current rapidly increasing unemployment requires a rigorous investigation into the causes and an adequate policy response. However, in Japan the research in regard with the changes in the employment structure was limited till now. Before the present severe employment situation and population aging get even worse, elucidation of the background of changes in the labor market represents an important issue for the policy to shore up the job market.

This research applies the methods accumulated by the macroeconomic research of labor market and analyses fluctuation factors of employment and unemployment rate on the basis of the re-aggregated government statistics. At the same time, we paid attention to the job creation (increase in employment opportunities due to new creation or expansion of business establishments) and job destruction (decrease in employment opportunities due to scaling down or closing of business establishments) that have been studied strenuously by the member countries of OECD. Moreover, in order to supplement the facts revealed by the data, we also conducted an interview survey of enterprises.

The main results are summarized below.

2. Main Results
(1) What is the main feature of deterioration in the employment situation since the financial depression of 1998 ?
- Serious stagnation of service sector and middle- and small-sized enterprises that have underpinned employment
- Job cuts in organizations with aging staff are getting apparent

Needless to say, weakening corporate performance resulting from the lack of demand due to deterioration in employment environment exercised negative effect. Throughout the 1990s the decline in employment was continuing in large-scale corporations and companies of manufacturing industries. But since 1998 the employment in middle- and small- sized businesses, service sector and construction industry that had underpinned employment entered stagnation. From 1996 till 1998 the slowdown in job creation due to growing of small businesses with 5 and less employees and new start-up of business enterprises entailed a sharp increase in unemployment rate.

In addition, the recent years are also characterized by the fact that the excess of manpower due to aging in organization cast shadow on employment curtailment. Till now in regard with relationship between population aging and employment fluctuation, there was only awareness that the staff in organizations ages primary due to restrained recruitment of young and new graduates. However, the results of this research imply that the enterprises with the most progressing aging are cutting employment and this tendency is strengthening since 1998. Basing on the analysis of Employment Trend Survey (2000) released annually by Ministry of Health, Labor and Welfare, if the proportion of the staff members aged more than 45 increases by 1%, the companies tend to decrease employment by 2% in half year.

Mass hiring during the high-growth period, delay in the revision of the age-based remuneration system, saturation of opportunities of redeployment of workers to affiliated firms and others led to the feeling of excess of middle-aged employees that strengthened rapidly in the 1990s. As a result, lower employment levels among young ensued. Moreover, in the environment of the sharp weakening of the operational performance in the latter half of the 1990s, the companies could not adjust the personnel cost only by curtailing the recruiting of young and begin substantial adjustment through the promotion of early retirement of middle-aged and older.

(2) What is the impact exerted by the population aging combined with the diminishing number of children on unemployment ?
- Aging of population lowers the proportion of the young with high level of unemployment rate and restrains increase in unemployment rate in total
- Analogously to the white-collar employees, the long-term unemployment of middle aged blue-collar employees grows into a serious problem

Aging in the organization entails the employment curtailment, but as for the labor market in the whole the aging of population combined with diminishing number of children puts partially the brake on the increase in the unemployment rate. This is because the aging of population lowers the proportion of young with high level of unemployment rate and, thus, restrains the increase in the unemployment rate.

What is more serious is that long-term unemployment of middle-aged and older is increasing amid the population aging. Among the middle aged unemployed workers, the proportion of the long-term unemployed without a job for more than a year is increasing and there are many blue-collar workers of manufacturing and construction industries in addition to the white-collar workers of large-scale businesses. Acceleration of the non-performing loans disposal is expected to entail the mass unemployment of the workers of manufacturing, construction and other industries. In this conjunction, job-placement assistance such as implementation of intensive skill development in respect to the skilled middle-aged workers who do not have job for a long period and detailed implementation of counseling for the change of job is an urgent task.

(3) What employment creation policy should be provided for the middle aged ?
- Policy to strengthen the cooperation between companies in order to offer wider options of reemployment
- Enhancing counseling using the private outplacement service providers

To facilitate the reemployment of middle aged workers that were forced to leave the job because of bankruptcy or downscaling of the companies, it is effective to promote information sharing and information exchange. It is necessary to create an environment where the workers can find reemployment place themselves and direct cooperation between companies (firm to firm) is promoted. For the companies that cannot help with the reemployment of their workers, the activity of the private companies supporting the reemployment (outplacement service providers) is an effective way. The outplacement service providers are highly valuated in case when they provide detailed counseling of job applicants and help effectively to start up business.

Taking into account the fact that if the reemployment place of middle aged and older is decided in a period ranging from a month to half year it is easier to avoid significant cut in wage, it is necessary to provide appropriate counseling of the job applicants as well as to review the period of employment insurance benefits.

(4) Does the increase in part-time workers swamp the full-time employment ?
- Establishments that increase part-time workers while decreasing full-time workers are in a minority
- However, in the environment marked by diminishing number of full-time workers, the part-time workers are continuing to take a firm hold

Since the number of part-time workers is increasing while the number of full-time workers is decreasing in the entire economy, it is usually said that the part-time workers deprive the full-time job. Nonetheless, the proportion of the enterprises with 5 employees and more that increased the number of part-time workers while decreased the number of full-time workers within a year does not exceed 10%. The cuts in the full-time employment opportunities in the companies that increased the number of part-time workers do not exceed 20% in the whole employment destruction (Figure 1). An expression that the part-time workers deprive the full-time employment lacks correctness.

Nevertheless, the companies that cut the full-time workers tend to strengthen usage of the relatively cheap part-time workers. Instead of full-time workers, the part-time workers are becoming to conduct key operations.

(5) What is the main feature of drop in self-owned businesses ?
- The policy to stop women proprietors to go out of business
- It is difficult to jump from unemployment to start-up of business

The diminishing number of individual proprietors in industries other than agriculture and forestry since the 1980s is a characteristic of Japan not seen in other developed countries. In the 1990s the decrease in number of employees is triggered not by decrease in employers, but by decrease in self-owned businesses and family employees. In regard with the reasons of decrease in self-owned enterprises, the fluctuations in start-up of businesses and winding up of business implicate that the effect of increase in winding up of business is greater than that of stagnation of start-up of new businesses, especially, the increase in winding up of business by women is significant. Decrease in enterprises owned by women is a unique feature of Japan. There is an urgent need to gain an understanding of the factors forcing women to go out of business.

Though the policy of promoting the start-up of own business by the unemployed that cannot find place of employment place is examined, the unemployed tend to decrease the start-up of own business and the independence of the unemployed is rather getting more difficult problem under the present situation (Figure 2).

(6) What are other necessary policies to shore up the job market ?
- Unemployment policy and, at the same time, policy to increase the participation of people not in labor force in the labor market
- Statistical provision concerning job creation and job destruction

Furthermore, the main feature of the labor market of women is that the tendency of women who lost the job to exit the labor market (not to work and not to seek for a job) is getting weaker (the effect of loss of incentive to seek a job). Women who lost a job are rather inclined to give up hopes for finding a job and to exit the labor market. Taking into consideration the further promotion of employment of women and unemployed and reservation of the labor force in the environment marked by aging population with diminishing number of children, it is not only the unemployment policy but rather policy against the people who are not in labor force to intensify the incentive to seek for a job and to promote the individual skill development deserves to be considered.

In order to gain better understanding of objective situation in connection with the fluctuations in employment opportunity and labor movement, it is essential to provide and release regularly the statistics concerning job creation and job destruction proposed in this research in addition to the total unemployment rate and effective ratio of job offers to applicants. This is expected to allow us to propose more advanced policy than simply an employment creation policy.

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