• Kyodo

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Japan’s severe labor shortage is at levels last seen about a quarter-century ago, states a government white paper presented to the Cabinet on Friday which also highlights the country’s need to resolve the issue in order to achieve sustainable economic growth.

The economy looks to be in its third-longest expansion phase on record, but consumption remains weak because wage growth is tepid despite tight labor market conditions, according to the paper on the economy and finances for fiscal 2017.

As productivity in Japan still remains lower than in other major developed economies, the government may consider promoting labor reform — cutting long work hours and eliminating unjustifiable discrimination between regular and nonregular workers. It may also push for advanced technology such as artificial intelligence.

“It’s one of the major limitations that the Japanese economy needs to overcome to realize sustainable growth,” the white paper says, referring to the country’s labor shortage. “At the same time, it could also create a big opportunity to boost productivity and break with deflation.”

Since taking office in late 2012, Prime Minister Shinzo Abe has been seeking to pull the Japanese economy out of chronic deflation using his “Abenomics” policy mix that includes bold monetary easing by the Bank of Japan.

But four years later beating deflation remains an unattainable goal, with the BOJ having pushed back the timing for hitting its 2 percent inflation target for the sixth time.

The paper, presented to the Cabinet on Friday, acknowledges that more women and elderly people — who tend to prefer working relatively short hours — have joined the workforce. Overall labor remains in short supply, however.

The unemployment rate fell below the 3 percent mark in February for the first time since 1994, while job availability has been at the best level in over four decades as companies hunt for workers.

However, such improvements have yet to translate into strong wage growth for workers, prompting the government to describe the situation as a “new phenomenon.” The white paper stated that companies, mindful of future economic and other risks, appear to be dragging their feet.

Tepid income growth has been blamed for sluggish private consumption, which accounts for close to 60 percent of the economy.

In analyzing consumer trends, the white paper refers to a growing number of “minimalists” — those who hope to keep their material possessions to a minimum — among young people, and increased social security payments by people in their 40s and 50s.

The government recognizes the need to boost confidence, especially among young people, in the outlook for employment and income conditions.

The release of the annual report comes as Abe, who has been calling on companies to increase pay for workers, is focusing on labor reform and is understood to view stepped-up investment in human resource development as a key to energize the economy.

“Labor reform should primarily contribute to improving work-life balance but it would also have a major economic impact,” the report said.

On capital spending, another critical component of the economy, the white paper predicts increased demand for investment in labor-saving, and to brace for the 2020 Tokyo Olympics and Paralympics.

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