Apr. 30, 2013, 16:00 JST

Unemployment rate declines to pre-Lehman shock level


Unemployment rate fell to the lowest level since August 2008

Unemployment rate in Japan declined to 4.1% in March 2013, returning to pre-Lehman shock levels. Job offers to applicant ratio, our prefered indicator to measure the tightness in the labor demand/supply balance, also returned to pre-Lehman shock level of 0.86 in this month.



The decline in the unemployment rate is not due to job expansion 

While the decline in unemployment rate is a good news for the labor force, we do see some concerning elements in the way the decline is taking place. For now, the decline is more due to shrinkage in working population than job expansion. As you can see in the chart below, the total number of jobs has not expanded at all since 2009. In the 4 years between March 2009 to March 2013, the number of jobs declined by 0.14 million. The unemployment rate nevertheless declined because there were larger shrinkage in the active labor force. In the same 4 year period, the active labor force in Japan shrunk by 0.50 million. People exited from the labor market either by retiring or by being discouraged by the dismal state of the labor market in Japan. Thus we do have a problem viewing the decline in the unemployment rate as a positive development for Japan.


Japan should aim for a larger labor force, rather than higher wages 

With the aging population, there are limits to how much you can resist the shrinkage in the labor force. But in our view, there is yet a scope to expand its labor force for Japan by extending its retirement age, or encouraging female labor participation. In our view, the ideal near direction for the Japanese labor market would be an increase in the number of employment so that it will lead to larger aggregate wage income, rather than through a higher wage per worker.