japan’s labor market challenges · 2020-02-21 · employers are facing the worst labor shortage...
TRANSCRIPT
Japan’s Labor Market Challenges
Giovanni Ganelli, Deputy Head of Office
IMF Regional Office for Asia and the Pacific Tokyo, January 2016
Overview
Boosting the labor force
Labor market duality and productivity
Labor market duality and wage-price dynamics
Boosting the Labor Force
Population and labor force are shrinking
Actual and Trend Labor Force (In million)
Source: Ministry of Health Labour and Welfare, Ministry of Internal Affairs and Communication, and Cabinet Office and IMF Staff Calculation.
Population Growth Rate (In percent)
Source: National Institute of Population and Social Security Research.
Demographics will weigh heavily on potential growth
Employers are facing the worst labor shortage in 20+ years
-60
-50
-40
-30
-20
-10
0
10
20
30
40
1985 1988 1992 1996 2000 2003 2007 2011 2015
All industries
Manufacturing
Nonmanufacturing
Excess
Shortage
(D.I.; “excess” minus “shortage”)
Bank of Japan Tankan Survey
Employment Condition by Industry Type
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1985 1990 1995 2000 2005 2010 2015
Nationwide Job-to-Applicant Ratio
Source: Bank of Japan Source: Ministry of Health Labour and Welfare.
Note: 2015 data is Jan-Oct average
But there are signs that there might still be some slack in the labor market
1000
1200
1400
1600
1800
2000
2200
2400
2600
2800
3000
1980 1986 1992 1998 2004 2010
Average Annual Hours Actually Worked per Worker (Hours)
France
Germany
Japan
Korea
United States
OECD countries
2014
25%
21%
18%
12%
8%
4% 12%
Flexible working hours Income supplement
Regular jobs unavailable Balancing with houseworks Leveraging specific skills Shorter commute Other
Reason for Working as a Non-Regular
Employee, 2014
Source: OECD.
Note: Germany is represented by West Germany until 1990 Source: Ministry of Internal Affairs and Communication
Policy options to address labor shortages
Increase labor inputs through supporting the shift from part-time to full-time
Boost female labor force Raise female labor participation rate Abolish tax wedge and social security disincentives Terminate spouse allowance payment
Increase take-home pay Support wage increase Lower social security premiums subject to fiscal space
Foster continuing attachment of older workers Raise pensionable age Reduce over-generous benefits
Increase the supply of foreign labor
Female participation has been rising 9
20
30
40
50
60
70
1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014
Japan United Kingdom United States
Germany Korea
Female Labor Participation Rate (In percent)
Source: OECD
20
30
40
50
60
70
1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014
Canada Germany
France G-7
United Kingdom Italy
Japan Korea
United States
Source: OECD
Older Worker Group Employment Rate (In percent; 55-64 year-olds)
Older workers’ participation is relatively high
10
Source: OECD.
(In percent, age 55-64)
Older Worker Group Employment Rate
Percentage of foreign workers in Japan is the lowest among OECD countries
0.3 1.3 2.2 2.73.9 4.8 5.4 5.6 6.6
7.8 7.99.6
8.29.4 9.5
13.4
21.8
66.7
0
10
20
30
40
50
60
70Ja
pan
Hu
ng
ary
Ko
rea
Fin
lan
d
Neth
erl
an
ds
Den
mark
Cze
ch R
ep
ub
lic
Fra
nce
Italy
Un
ited
Kin
gd
om
Gre
ece
No
rway
Sp
ain
Germ
an
y
Belg
ium
Au
stri
a
Sw
itze
rlan
d
Luxe
mb
ou
rg
Stocks of Foreign Labor Force (percent of labor force; 2008)
Source: OECD “International Migration Outlook 2010”
Labor Market Duality and Productivity
Labor market duality is deepening
31.4
32.6 33.0
33.5
34.1 33.7
34.4
35.1 35.2
36.7
37.4
28
29
30
31
32
33
34
35
36
37
38
2004 2006 2008 2010 2012 2014
Ratio of Non-Regular Workers (In percent)
0
5
10
15
20
25
2004 2006 2008 2010 2012 2014
Number of Employees by Employment Type (In million)
Regular - male
Regular - female
Non-regular - male
Non-regular - female
Source: Ministry of Internal Affairs and Communication.
Female labor participation is skewed toward non-regular contracts
69.3
10.3
50.5
37.9
51.6
62.2
48.6
0
10
20
30
40
50
60
70
80
90
100
Regular employees
Part-time workers
Temporary workers
Dispatched workers
Contract employees
Entrusted employees
Other
2007 2014
Female Representation by Employment Format (In percent)
Source: Ministry of Internal Affairs and Communication
Labor market duality has reduced investment in human capital
Labor market duality reduces training opportunities for non-regular workers
Only 42 percent of companies provided training for non-regular workers, where as 92 percent of companies provided training for regular workers (Kawaguchi and others, 2006)
Workers productivity improves 5 percent per year if a worker receives training
Additional 5 hours of training will allow the worker to take up one additional operational task (Ariga and others, 2013)
53.1 50.3 49.4
37.5
29.3 27.3 25.5
20.0 19.2
0
10
20
30
40
50
60
2010 2014
Issues Related to Non-Regular Workers
(In percent of total employers)
Source: Ministry of Internal Affairs and Communication
Contract reform to reduce duality would boost efficiency through higher productivity
Excessive Duality can reduce Total Factor Productivity (TFP) through various channels (e.g. training, motivation)
20 percent of the productivity slowdown in Spanish manufacturing (1992-2005) is attributed to reliance on temporary work (Dolado and others 2011)
Deregulation of temporary contracts negatively influences TFP growth in a panel of 14 EU countries (Damiani and others 2011)
Labor Market Duality and Wage-Price Dynamics
Labor market duality has also suppressed wage growth…
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
0.0 0.5 1.0 1.5 2.0
Real w
ag
e g
ro
wth
Labor productivity growth
Sources: OECD, and IMF staff calculations.
Real wage and productivity growth (In percent, 1992-2014)
27
29
31
33
35
37
-3
-2
-1
0
1
2
3
2001Q3 2003Q3 2005Q3 2007Q3 2009Q3 2011Q3 2013Q3 2015Q3
Changes in part-time wages
Composition effect
Change in full-time wages
Share of nonregular workers (right side) 1/
Sources: Haver Analytics; and IMF staff estimates.
1/ Yearly Average.
Nonregular Workers and Wage Growth (year-on-year percent change) (% of staff)
…notwithstanding labor shortages
Manufacturing
Construction
Real Estate
Wholesaling &
Retailing
Electric & Gas
Utilities
Transportation
Info.
Communication
-3
-2
-1
0
1
2
3
4
5
6
-40 -30 -20 -10 0Changes in Employment Conditions
Wag
es G
ro
wth
Changes in Employment Conditions and Wages Growth 1/(2010Q4-2015Q3)
Source: Haver Analytics.
1/ Diffusion index. More negative indicates more tightening.
-6
-4
-2
0
2
4
6
8
1990 1995 2000 2005 2010 2015
Wage Growth(In percent, YoY)
Shunto wage growth Nominal wage growth
Source: Ministry of Health, Labor and Welfare
Findings from Porcellacchia (2015)
If
1. the economy is in the liquidity trap and
2.workers’ bargaining power deteriorates
then
1. prices decrease regardless of monetary policy and
2.real wages decline below productivity.
If
1. The decrease in workers’ bargaining power is large,
2. The inflation target is low,
3. The economy’s discount rate is low (due to population aging or a deleveraging shock)
then
the economy is more likely to fall in the liquidity trap.
The Labor Market Policy Trade-Off: Reflation vs. Employment
In the liquidity trap, it is possible to reflate the economy by increasing workers’ bargaining power with a labor-market reform (in Japan’s case, by reducing labor-market duality)
However, the benefits of reflation must be weighted against the
downside of a reduction in employment This is an unusual trade-off: an inverted Phillips curve relation.
Porcellacchia (2015) is the first to make a clear theoretical case that structural reforms can be inflationary in the short term in certain countries (i.e., Japan)
A labor market reform should be accompanied by corporate governance reforms to strengthen the incentives for firms to pass on the higher costs (from higher wages) into prices
Policy options to raise wages
Raise public and minimum wages
Provide/further strengthen tax incentives for employers that rose wages
Increase the frequency of the wage rounds
Apply “comply or explain” rules for wage hike, backed up by penalties if needed
Reduce labor market duality
Reform labor contracts and laws to balance job security and job flexibility
Thank you