Low unemployment hides slack in Japan's labour market

Subject

Japan's labour market.

Significance

Employment climbed 2% (1 million workers) in 2016 over the previous year. Three-quarters of that jump occurred in small firms of fewer than 30 people. Most of the action in Japan’s labour market now occurs in such businesses. They respond to changes in demand by rapid hiring and firing, not by varying the hours worked per employee because they do not have the resources to keep excess labour as a buffer for future requirements.

Impacts

• Firms’ preferences for part-time labour has blunted wage pressures because there is an excess supply of labour hours.
• Women receive lower wages because they work disproportionately at small firms and in part-time jobs, both of which pay low salaries.
• There is no evidence of rising earnings at the most competitive end of the market -- small firms.