Japan Unemployment Rate

Japanese labor market continues to tighten, but apparently not enough to ignite wage growth.

Published monthly by the Ministry of Internal Affairs and Communication. Updated to the month of March 2017 (published on April 28th, 2017).

Recent data trend:

The demand/supply balance in the Japanese labor market continues to remain tight. The unemployment rate remained steady at 2.8% in March 2017, matching the lowest rate since June 1994. Japan is likely to be at its full employment status, with only frictional unemployment remaining in the labor market. 

Other labor market indicators such as new job offers to applicant ratio also show that there is yet not enough supply of labor in Japan. The job offers to applicant ratio rose marginally to 1.45 in March 2017 from 1.43 in the previous month. This marks the highest level of this ratio since November 1990. New job offers to applicant ratio, a leading indicator for the labor market, rose slightly to 2.13 from 2.12 in February 2017, reflecting that there is more than 2 new vacancies opening up for every new job seeker.

While there is no doubt that the labor market condition in Japan is tight, the tightness in the labor market is caused as much by the shrinkage in the Japanese working population as the rise in demands for labor. The working age population in Japan, defined as the population of the age between 15 and 64, has been shrinking rapidly. In 2016, the work age population in Japan fell by 0.7 million people. Accordingly, job applicants have been declining by 5% per year in the last few years. The ageing and shrinking Japan population is countering the efforts of BoJ and government to achieve a higher level of growth rates.

Wage growth remains a cause of concern. It could be an important source of stimulus for domestic demand but we find that Japanese companies are still reluctant to raise wages despite the buoyant corporate profits. In our view, the reluctance is not so much a reflection of employers' greed, but a reflection of uncertainty of the sustainability of the current business condition. 

Another reason for the low sticky wages in Japan is the strong employment protection for permanent workers, discouraging the firms to raise wages. We expect wages to gradually rise reflecting the tight labor market condition, but we do not see the wage inflation to reach a level consistent with the 2% inflation target any time soon.

Brief Overview of "Unemployment Rate"

Unemployment rate is the ratio of unemployed to total working population. One needs to be actively searching for work to be recognized as an unemployed. Japanese unemployment rate has been one of the lowest among OECD countries alongside South Korea and Norway. NAIRU, the Non-Accelerating-Inflation-Rate of Unemployment rate, was considered to lie between 3.5% and 4.5% in Japan. As the current unemployment rate is already below the lower range of the NAIRU, the unemployment rate gap, the difference between NAIRU and the actual unemployment rate, should be exerting an upward pressure to wage inflation. Evidently though, the gap must be a very weak factor for the determination of wage inflation dynamics in Japan.

For more information, visit the official government page

Labor participation rate

Source: MIAC, JMA.

Note: Seasonally adjusted labor participation rate is calculated by dividing seasonally adjusted labor force by population of 15 years old and over.

The Next Release Date: May 30th, 2017.

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