Gross Domestic Product in Japan shrank an annualized 27.8 percent compared with the previous three months, recording a steeper slump than after the 2008 global financial crisis. Personal consumption, exports, and capital investment were all severely impacted.
With the coronavirus pandemic battering the global economy, a V-shaped recovery is looking unlikely. Officials are forecasting Japan’s annual growth to shrink 4.5 percent for the fiscal year to March 2021 as exports, tourism, and the airline industry are disrupted. Although data shows that consumption and production may have hit the bottom in early May, many experts, including one Bank of Japan board member, expect that even in fiscal 2022, the economy is unlikely to return to where it was before the outbreak.
Severe blow to labor market
Lingering effects of the pandemic are likely to sink the job market further. While June’s unemployment figure of 2.8 percent is low compared to other countries, underemployment is emerging as a problem.
Labor conditions in Japan may be already worse than what the number suggests. For example, the number of employees has slightly increased, giving a false impression that the job market is improving. Taking a closer look, the number of self-employed workers with less than 14 hours of working hours per week is on the rise. Economists note that this implies many people without jobs have turned to freelancing with reduced earnings.
Employees regarded as “socially vulnerable” are most at risk in the current environment. Many who have lost their jobs are casual staff, workers in their 20s, women in their 30s and 40s, and people older than 50.
Saito Taro, executive research fellow at NLI Research Institute, predicts that the jobless rate will climb to four percent by the end of this year.
Many managers are cutting back on new hires. According to a survey conducted by Recruit Works Institute, a Tokyo-based thinktank, the number of openings for college graduates next March will drop 15 percent compared with this year. It could be worse for students graduating the following year as labor conditions grow even tighter.
Yamada Hisashi, vice chairman of the Japan Research Institute, warns that by the end of next year, the number of jobs lost is likely to exceed the 1.2 million that disappeared after the 2008 global financial crisis.
Developing human resources
Government leaders and lawmakers are looking at ways to stop the vicious spiral. One policy option is already on the table. The extension of expanded employment adjustment subsidies, set to expire by the end of September, is being discussed. The subsidies have helped the labor market from rapid deterioration, and it’s likely they will be extended to the end of December.
Another option that is already underway is temporary reassignment. Some people who have lost their jobs have gone to work for companies who are in desperate need for more staff. For example, a laid-off sightseeing bus driver can work for a home delivery service that is scrambling to keep up with increased orders from people staying home. An amusement park attendee can help staff supermarkets and drugstores that are also facing more demand.
The key to the scheme is making it easier to match businesses in need of staff with companies that are unable to keep employees with a similar skill set. Government incentives to encourage corporates to hire, and strengthening intermediary recruitment services to make more matches, can both help the process.
But it is expected to take much more to overcome an economic slump that could last for years. Investment in human resources development is essential as the industrial framework transforms amid, and after, the coronavirus pandemic. As some jobs fade away, other sectors need more staff.
Momma Kazuo, executive economist at the Mizuho Research Institute, stresses that government officials, business executives, and labor union leaders need to work together to discuss what a post-corona economy could look like, and how best to enable job seekers to choose the most promising industrial sectors.