From APEC HRDWG Wiki

In support of the Jakarta conference relating to the Human Resource Impacts of the Economic Crisis, Japan has submitted a case study draft of the impacts of and their responses to the economic crisis.

Recent Performance of the Economy and Labor Market Until the Global Recession

Soon after the magnitude of the looming global crisis became apparent in mid-2007 Japanese enterprises began to incorporate expectations of lower world demand into their investment and production plans. This explains why the Japanese economy started to contract even earlier than the US economy in response to the shocks originating in the financial sector and why the extent of this contraction was the largest among the G7 economies. Overall, GDP fell by 1.2 percent in 2008 and 5.2 percent in 2009. The effect of the crisis on international trade was even more drastic and sudden. Japanese exports and imports started to decline in September 2008 and by February 2009 were at about half the level of a year earlier. Overall, Japanese exports to the world decreased by 25.7 percent in 2009 from a year earlier, from US$782 billion to US$581 billion (constant prices). The unemployment rate, which had been decreasing during the recovery from the long stagnation period that started in 1990, increased from 4.1 percent in 2008 to 5.1 percent in 2009, reaching a high of 5.6 percent in August 2009.

Impact on Politics

From a political perspective, the impact of the financial crisis encompassed at least three administrations, those of Prime Ministers Yasuo Fukuda (September 2007 to September 2008), Taro Aso (September 2008 to September 2009), and Yukio Hatoyama (September 2009 to June 2010), the first two as leaders of the Liberal Democratic Party of Japan (LDP), the latter as leader of the Democratic Party of Japan (DPJ). Two packages of measures were launched to respond to the global crisis, one in April 2009 (Aso administration), the other in December 2009 (Hatoyama administration).

Impact on the Labor Market

To understand the specific impact on the labor market it is important to observe that since the end of the bubble economy in 1990 the Japanese employment system has experienced significant pressure. Several trends have emerged as a consequence, and the global recession has contributed to their consolidation. First among them is a steady progression in the structural or frictional rate of unemployment, which climbed from about 2 percent in the 1980s to about 3 percent in the 1990s and about 4 percent in this decade. A second important trend is a reduction in the share of regular workers among employees, which fell from more than 80 percent in 1988 to about 66 percent in 2008. A third trend is a consistent increase in the rate of female participation in the labor force, which went from 35.9 percent in 1985 to 41.9 percent in 2008. A fourth and relatively recent trend is a reduction in the size of the labor force.

Some major issues have arisen in the wake of these trends. First, a worrying wage gap has developed. The phenomenon became important enough to be raised as an issue in the general elections of August 2009 and appeared prominently in the Manifesto of the Democratic Party of Japan, which emerged victorious from those elections. A second is the appearance of an underclass of “working poor”—workers whose earnings are insufficient to enable them to take care of their basic expenses, much less those of a family. A third and related issue is the increase in youth unemployment. The specific policy responses to the impact of the crisis in the labor market involved five packages of measures enacted from August 2008 to December 2009. They addressed the problems of non-regular workers, the issue of job security, and others such as job creation, vocational training, safety nets, and the specific problems of young workers and special groups such as female workers, older workers, foreign workers and disabled workers.

Conclusion

The global financial crisis struck Japan at a delicate moment, as a recovery from the long stagnation period that followed the “bubble economy” seemed to take shape. This recovery was, however, rather feeble and uncertain, and was dependent on an unstable compromise between conflicting views about the future of the Japanese economic system. The global crisis has the potentially positive effect of awakening the economy to the need to make some clear choices about the direction of Japan in a changed international environment. Already it had important political implications that led to the emergence of new administration in September 2009.