OECD Employment Outlook 2022

Japan

Labour markets have continued to improve in 2022, but the outlook is uncertain

Total employment in the OECD returned to pre‑crisis levels at the end of 2021 and continued to grow in the first months of 2022. The OECD unemployment rate gradually fell from its peak of 8.8% in April 2020 to a level of 4.9% in July 2022, slightly below the 5.3% value recorded in December 2019. However, the labour market recovery has been uneven across countries and sectors and is still incomplete, while its sustainability is challenged by the economic fallout of Russia’s unprovoked, unjustified, and illegal war of aggression against Ukraine.

• Japan’s labour market showed significant resilience during the COVID‑19 crisis, with limited fluctuations of both unemployment and employment rates. However, more substantial declines took place in total hours worked, and the recovery has been lacklustre. The unemployment rate has improved from a peak of 3.1% to 2.6% in July 2022. However, it is still 0.4 percentage points above the pre‑crisis level. Moreover, total hours worked in Q1 2022 were still over 5% lower than those in Q1 2019.

• While the employment rate for those aged 15 and over has almost fully recovered its pre‑pandemic level, this reflects a better than full recovery for women and lagging recovery for men. The gender difference in recovery is partially reflecting Japan’s long-term demographic trends. The number of male workers has been in decline over the last two decades and the male employment rate has been almost capped around 70% over this period. On the other hand, the female employment rate has substantially increased in the last decade, sustaining both level and rate of overall employment in Japan.

• Japan has recently seen a series of legislations to support female employment. Effective from July 2022, the Act on Promotion of Women’s Participation and Advancement in the Workplace has been revised to require firms with at least 301 regularly employed workers to disclose gender pay gaps. Last year, the Act on Childcare Leave and Caregiver Leave was amended to expand the use of maternity leave and create additional paternity leave. Addressing gender imbalances in housework and childcare and increasing the take‑up rate of both maternity and paternity leave would be key to boosting female labour supply.

Figure 1. Labour market have continued to improve across the OECD in 2022

Note: Latest month available refers to May 2022 for the United Kingdom and to August 2022 for the United States.

Source: OECD (2022), “Unemployment rate” (indicator), https://doi.org/10.1787/52570002-en (accessed on 2 September 2022).

Despite tight labour markets, real wages are falling

Vacancies surged to record highs in the OECD area, and reports of labour shortages rose significantly in many industries and countries. Despite this, nominal wage growth remains well below the high inflation induced by the commodity price hikes spurred by Russia’s war of aggression against Ukraine. The decline in real wages is expected to continue over the course of 2022, as inflation is projected to remain well above the negotiated nominal wages for 2022.

• The ongoing supply chain disruptions, the historically low yen and surging fuel prices are exerting unprecedented inflationary pressures on Japan, which had experienced no increase in inflation and nominal wages over the last two decades. In July 2022, Japanese core inflation rose to 2.4% whereas the nominal wage growth stood at 1.8%, lowering real wages for four months in a row.

Young people are still lagging behind older adults in the recovery

Young people were particularly affected by the initial ravages of the crisis. By Q1 2022, on average across the OECD, young people had recovered much of the lost ground, but were still lagging behind older adults. The employment rate of those aged 15 to 24 years was below pre‑crisis levels in a majority of OECD countries and, on average, just at the level of Q1 2019. By contrast, it had increased over the same period by 1 and 3 percentage points, respectively, for adults aged 25‑54 and 55‑64.

• The aftermath of the COVID‑19 pandemic has been felt acutely among young people in Japan, and the so-called “scarring effect” on young workers remains a cause for concern. In contrast to the overall recovery in youth employment in the OECD area, Japan’s youth employment rate was 1.3 percentage points lower in Q1 2022 than that in Q1 2019. This employment loss is particularly pronounced in low-paid service sectors which tend to have a larger share of young workers.

• There is an increase in youth inactivity in Japan, especially among those who do not hold university degrees. While the increase in the inactivity rate from Q1 2019 to Q1 2022 was 0.3 percentage points on average for OECD countries, it was 1 percentage point for Japan.

Figure 2. Young people are still lagging behind older adults in the recovery

Note: OECD is the unweighted average of 34 OECD countries (not including Colombia, Costa Rica, Israel and Türkiye).

Source: OECD Employment Outlook 2022, Chapter 1.