Japan’s Struggling Labor Market

As with any growing country, the demand for labor in Japan is increasing. The problem in Japan, however, is that the labor force is having a hard time keeping up. Already, unemployment rates are dipped to 2.8% at the beginning of this year- the lowest it’s been in over two decades. On top of this higher participation, elderly people are coming out of retirement to fill the void, not exactly the productive labor force you would wish for in a blossoming economy.

Any economist will tell you that this is cause for inflation. The scarcity of workers will demand higher wages, forcing prices of products to increase in order for firms to cover their costs… and so on.

In reality, wages aren’t rising like they should be. In fact, inflation was recorded in 2016 at a measly .2% increase, well below Bank of Japan’s 2% goal. How can this be so with such a large demand for labor?

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What’s going on here is that the increase of demand has resulted in an increase of supply rather than price. According to The Economist, over 10% of the country’s firms admit that some workers frequently put in more than 100 hours of overtime in a month. This puts tremendous strain on workers, pushing some as far as committing suicide.
A workforce made up of over-worked individuals and elders is slowing labor productivity and is not conducive to a sustainable economy. The country must consider reforming their entire labor market in order to progress smoothly in the future.

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