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Measures to Address Current Youth Labor Market Issues

Mary C. Brinton
Harvard University


“The crisis of youth” (wakamono kiki). This was the cover story in an issue of the Japanese news magazine Tōyō Keizai in early 2009. The magazine cover showed a grim-faced young Japanese man in a business suit. Inside the magazine, statistics and stories of Japanese young people’s difficult employment situation filled the pages in discouraging detail. Comparative statistics for other OECD countries appeared in colored graphs in the accompanying article but did little to brighten the depiction of Japan.
Japan simultaneously completed its passage to a mature postindustrial economy and endured a massive economic recession in the 1990s and the beginning of the present century. These processes naturally caused unemployment levels to increase, especially for high school graduates who had increasing difficulties finding manufacturing and other skilled jobs. But more important than economic recession was the fact that what can be called Japan’s human capital development system began to fundamentally change. Japan began moving away from the stable postwar institutional equilibrium that had existed in its labor market, towards a different equilibrium. This new equilibrium has not yet been reached. In the process, a “lost generation” and now a second “lost generation” have been produced. A sharp intergenerational divide has emerged between middle-aged workers who have job security and young workers who do not. A fundamental postwar implicit social contract has been abandoned. Which contract is it? It is the implicit contract that society had with new school-leavers: the implicit understanding that young men who graduated from school and moved into the workforce could earn a spot in the Japanese middle class for themselves and eventually for their family. Such a lifestyle was open even to high school graduates, not just to the educational elite who graduated from first- or second-ranked universities. But now, Japan’s social contract with the young has been broken and in contrast, its implicit contract with middle-aged breadwinners to protect their job security has been largely upheld.
This intergenerational tradeoff is bittersweet indeed. The gap between the unemployment rates of young workers and middle-aged workers increased sharply in Japan from the late 1990s onward. So too did the gap between the job security and working conditions of young and middle-aged employees. In my opinion, the deterioration of employment conditions for the young generation in Japan over the past two decades can be traced in large part to the segmentation of the Japanese labor market. That is, it is not just slow economic growth that is to be blamed but also deep structural problems in the organization of the Japanese labor market itself. By “labor market segmentation” I do not mean segmentation in the usual way it is discussed, as the segmentation of the economy into large capital-intensive firms and smaller labor-intensive firms. Instead, I mean the longstanding segmentation of the Japanese labor market into jobs for new graduates on the one hand and jobs for everyone else on the other hand. While the strong segmentation of the Japanese labor market by age, sex, and education may have served Japan well during the period of high-economic growth, it contained the seeds of its own demise and now poses more disadvantages to Japan than advantages.
The segregation in the Japanese labor market during the 1960s-1980s presumed a continued demand on the part of employers for young full-time workers, and presumed as well the ability of employers to be able to pay an ever-increasing wage bill as their current employees aged. Moreover, it conditioned Japanese young people to rely on institutions to guide them smoothly from school into the workplace, and to rely on the workplace to provide skills training. But deep economic recession in the 1990s led to the deterioration of these institutional structures.
Employment restructuring in Japan during the “lost decade” of the 1990s produced new forms of non-regular employment and the expansion of these forms to the entry-level labor market for new graduates. Japanese employers now have greater freedom to hire a mix of regular workers and non-regular workers (including haken workers, part-timers, other fixed-contract workers, and students doing arubaito). Meanwhile, employment protection remains quite strong for regular workers but is very weak for these non-regular workers. As unemployment and rates of hiseiki koyō have dramatically increased among members of the young generation, the scarring effects of both of these have become painfully clear.
In 21st-century Japan, both workers and employers need to adapt more fully to the idea of a worker having portable human capital that can be carried across firms and valued in different firms. On the labor supply side, the Japanese educational system needs to better prepare young people to adapt to the globalized economy and to a more open and flexible labor market. But employers, too, need to learn to recognize and value young workers who have gained a variety of work experiences in their 20s, while not being in a “permanent” and secure job. This will take time.
What can be done to improve the future job prospects for young hiseiki koyōsha? Additional labor market policies are clearly necessary. In my view the Japanese government needs to take aggressive and positive steps to create policies that provide incentives for employers to promote more non-regular workers into full-time, regular employment. For example, the government could provide financial incentives to employers (either through subsidies or lower taxes) to move at least 40 percent of their non-regular workers into regular employment status within two years after workers are hired. This incentive could promote two positive changes in employers’ behavior: First, when employers hire young hiseiki koyōsha, they would have an incentive to hire those whom they judge to have the greatest future potential. As a result, employers would become more conscientious about providing skills training to non-regular workers. Second, these firms would be likely to attract the most ambitious and “best” non-regular workers. This would create a positive labor market mechanism that would foster healthy competition among non-regular workers and healthy competition among employers to attract the best non-regular workers. As a result, the market for non-regular workers would become more competitive. This would lessen the stigma and the “scarring effect” of non-regular employment and would lead to better outcomes for both workers and employers.
In conclusion, the Japanese government needs to develop policies that will utilize incentives and the natural market mechanism of competition to improve the employment prospects of non-regular workers and to improve firms’ productive use of human capital. As social scientists we know that moving to a new equilibrium is difficult. But in the 21st-century Japanese labor market, it is essential.