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Japanese Economy Update

Changes in Japanese Employment Under COVID-19

  Senior Research Fellow


COVD-19 has led to some significant changes to the employment situation in Japan. In this month’s column, these changes will be summarized by comparing what happened in CY2020 with CY2019 using the Labor Force Survey.

Those who are not in labor force increased and those who are declined

The starting point is the population of those who are aged 15 years old or over (hereafter “population of 15+”). Since the total population in Japan is declining, this category of population has also been declining. In CY2020, the population of 15+ shrank by 120 thousand from the previous year (Figure1).

In the recent years, especially under the years of Abenomics, despite the decline in population of 15+, labor force has increased, owing much to the increase in the labor force participation rate of females. For instance, in CY 2019, even though the population of 15+ fell by 90 thousand, the labor force increased by 560 thousand, thanks to the increase in female labor force by 440 thousand.

However, in CY2020, labor force declined by 180 thousand, a decline for the first time in eight years (Figure 1). It is due to the increase in those who are not in labor force, which is again a situation seen for the first time in eight years. The age composition of the increase in those who are not in labor force shows that it was the aged (aged 65 years old or over) that increased, probably because they have decided to retreat from the labor market because of the pandemic.

This does not mean that those aged between 15 and 64 did not have any problems. It is not only because there were in significant increase in the number of unemployed for these aged group, as we will see later, but because of the significant increase in the number of young people who are not engaged in either education or housework. Those who belong to this category in the age group of 15-24 increased by 130 thousand, largest increase in the recent years. From the point of view of enthusiasm to work and accumulation of experiences and skills, it is a worrying situation.

Unemployed increased because of the unfavorable business conditions

The breakdown of labor force shows that the number of employed has declined by 480 thousand, a decline for the first time in eight years (Figure 1). It led to discouraged workers who left the labor force, as we have already seen, but also to an increase in unemployment by 290 thousand, first increase in unemployment in eleven years. The increase in unemployed is due to increase in involuntary departure from jobs; departure due to dismissals increased by 140 thousand and departure because of reaching a retirement age or reaching the end of the employment contract increased by 40 thousand (Figure 2).

It should be noted that the increase in the number of unemployed was rather limited compared to the decline in economic activity and relative to the situation in countries like the United States where unemployment rate shot up to more that 14 percent at the peak of the crisis. That is because there was a significant number of workers who were asked to be on leave with pay in Japan. The number of employees who were on leave with pay increased by 680 thousand. If the number of the increase in those who were on leave with pay, inclusive of those in the self-employed and family workers, had been dismissed rather than hoarded, the unemployment rate of Japan in CY2020 could have been 3.9 percent instead of the official 2.8 percent.

Both self-employed and employees declined

Decline in the number of employed by 480 thousand was due to both the decline in the self-employed and family workers and the decline in employees; self-employed and family workers declined by 90 thousand and employees by 310 thousand (Figure 3). The decline in the number of employees was seen for the first time in eleven years.

Employees consist of executives and employees other than executives. Executives seems to have increased by 90 thousand, leaving employees to decline significantly by 40 thousand (Figure 3).

Regular workers increased while non-regular workers declined

Since the economic situation has been so harsh, it can be imagined that the situation was especially serious for the non-regular workers. That is indeed the case. The number of non-regular workers declined by 750 thousand. In contrast, regular workers increased by 360 thousand even during this difficult period (Figure 4).

Female regular workers increased the most

What is more interesting, however, is that the increase in regular workers concentrated mainly in female workers: female regular workers increased by 330 thousand while male regular workers increased by only 30 thousand (Figure 5).

In fact, there seems to have been a significant reshuffling of female workers in terms of employment contracts. The decline in non-regular workers is also concentrated mainly in female workers. Of the decline of non-regular workers by 750 thousand, male non-regular workers declined by 260 thousand while female non-regular workers by 500 thousand.

Industries where female regular workers increased

Where did the increase in female regular workers take place? The breakdown of changes in the number of female employees by industries shows that increase in female workers was significant (increase by more than 30 thousand) in the industries such as manufacturing, information and communications, wholesale and retail trade, finance and insurance, real estate and leasing, education and learning support, medical and social welfare, and government services (Figure 6).

Of these industries, there were also increase in non-regular workers in medical and social welfare, and government services. However, the breakdown to finer industrial composition shows that it is not the same sectors that have increased regular and non-regular workers. In the medical and social welfare industry, medical sector has increased regular workers while social welfare sector (including long-term care sector) has mainly increased non-regular workers. Similarly, in the government services industry, central government has mainly increased regular workers while local governments have mainly increased non-regular workers.

In other industries, increase in regular workers were accompanied by decline in non-regular workers. However, again, it is not necessary the same sectors that showed increase in regular workers and decline in non-regular workers. In the case of real estate and leasing industry, for example, the real estate sector has increased regular workers, but it is the leasing sector that is reducing non-regular workers. Similarly, in education and learning support industry, schools are increasing regular workers while leasing sector is reducing non-regular workers. Wholesale sector in the wholesale and retail trade industry may be the only industry that may be increasing regular workers while reducing non-regular workers at the same time (meaning upgrading of workers’ status?). However, we need to look into the breakdown of the industries to finer level to see what is actually happening.

Is it a permanent change, or only temporary?

What we have seen shows that there may be a significant change taking place in the Japanese employment under COVID-19. That is especially the case with female employment: female regular workers are increasing steadily even under the unfavorable business conditions brought about by the pandemic.

The increase in female regular workers may be reflecting a trend towards better employment situation for females. Many of the industries which are increasing female regular workers coincide with industries which are apparently expecting better prospects in the near future: it can be confirmed by the result of the recent business confidence survey in the Tankan or the performance of stock prices by industrial groups. In order to secure employment for future development, these industries may be looking at female workers as a pool of talented workforce. In order to attract the female workers, they seem to be offering employment with lifetime commitment to them including mid-career workers.

However, the situation under COVID-19 is still uncertain, and what a waits after the pandemic is even more difficult to foresee. Whether the changes taking place in employment are structural and would be sustained for some time or are only temporary in nature and soon be reversed still needs to be seen.