The labor drag on the economy

A labor shortage appears to be weighing increasingly heavily on the prospects of Japanese companies as the nation faces a long-term decline in the working-age population. While the jobless rate has sunk to the lowest in 22 years, the tightening manpower supply is a growing source of concern for many firms that isn’t likely to go away under current demographic trends. Some sectors are already being forced to adapt their business models to the labor shortage, curtailing some of their services when they can’t secure enough staff.

The government needs to step up its efforts to sustain the labor force in the rapidly falling and graying population, including measures to prop up the low birthrate and facilitate greater labor participation by women and senior citizens. The private sector, for its part, is urged to respond by beefing up investments in manpower-saving technologies, including those featuring artificial intelligence.

Yamato Transport Co., the leading door-to-door parcel delivery firm, has been forced into hiking its rates and curbing some services because the company can’t secure enough drivers to keep up with the sharp increase in the volume of parcels due to the popularity of online shopping. Some retailers and restaurant chains — sectors where the labor crunch is also acute — have started to shorten their business hours in response to staff shortage.

Improvements in the labor market are often touted among the major achievements of Prime Minister Shinzo Abe’s trademark Abenomics economic policies. The jobless rate in March stood at a 22-year low of 2.8 percent, and the ratio of job openings to job seekers was the highest since 1990 at 1.45. The ratio exceeds 1.0 in all of the nation’s 47 prefectures, and in Tokyo, where the ratio is the highest, there are 2.06 openings for every applicant. It is indeed a seller’s market, which for businesses means greater difficulties in securing the manpower they need.

The manpower shortage was also a problem during the era of Japan’s rapid postwar growth, when businesses scrambled to hire more workers to respond to increasing demand. The current shortage comes against the background of the declining and aging population, which is causing a long-term fall in the number of working-age people. People in the so-called productive age between 15 and 64 as of last October numbered 76.56 million, falling 520,000 from a year earlier and accounting for 60.3 percent of the total population, a 0.3 percentage point decline. With the low fertility rate, this segment of the population is projected to shrink faster than the overall population over the long term.

The latest tankan survey by the Bank of Japan released in early April found that business sentiment among large manufacturers had improved for the second quarter in a row, but the firms were more cautious about their business prospects in the months ahead, with the manpower shortage cited as a key source of concern. An index showing the labor crunch as felt by the businesses reached the highest level since 1992 in the closing days of the bubble boom. The manpower shortage can cause lost business opportunities for companies when they are unable to take orders or increase output due to insufficient staffing.

The manpower crunch is believed to be more acute among major companies, especially as they try to secure regular full-time employees. A Teikoku Databank survey of more than 20,000 firms nationwide in January showed that 43.9 percent of the respondents have a shortage of full-time employees, a 6-point increase from a similar poll six months ago and the highest level over the past 10 years. The ratio was particularly high among big firms, 51.1 percent of which complained about the manpower crunch.

The shortage also seems to be growing severe for companies seeking workers for irregular, non-full-time positions, with nearly 30 percent of the respondents saying they are unable to secure enough staff, particularly in such sectors as restaurants, entertainment services and retail operations like supermarkets and convenience stores.

The survey found that the increasingly active recruiting efforts by major companies facing staff shortages are exacerbating the difficulty of smaller firms to secure enough workers, while rising wages in the face of the labor shortage are pushing up manpower expenses and weighing heavily on their earnings.

The demographic trend will require policy responses by the government. But businesses will need to start doing what they can to cope with the nation’s projected long-term labor supply crunch.