Labor shortages are becoming an increasingly serious problem in Japan amid the current economic recovery, particularly for those sectors where lack of enough manpower and rising wage costs result in lost sales and even bankruptcy despite rising demand.

However, companies can and should turn the situation around to create a virtuous cycle where rising wages boost people’s consumption and more business investments.

In May, the unemployment rate hit a 16-year low of 3.5 percent and the ratio of job offers to job seekers reached 1.09 — the highest level in nearly 22 years. While the demand for labor continues to pick up, the construction industry and some service sectors, including restaurant chain businesses, face severe manpower shortages.

Some restaurant chain operators have been forced to shut down a number of outlets and reduce business hours due to insufficient staffing. Delays in construction starts due to worker shortages and the rising costs of manpower pose an industry-wide headache, hampering implementation of government public-works projects.

According to Tokyo Shoko Research, 20 companies went bankrupt in the first half of this year due to manpower shortages, compared with six in the same period of 2013. Rising wage costs for recruiting workers is said to be weighing heavily on the management of small and medium-size firms. Surveys indicate that businesses expect manpower shortages to get worse in the months ahead.

Still, the manpower shortage has not yet spread to all segments of the economy as some business sectors continue to face a labor glut. The ratio of full-time-position offers to seekers of such jobs stood at only 0.67 in May. This shows that companies are trying to fill their manpower needs mostly by hiring irregular workers such as part-timers.

Since the 1990s, many Japanese companies have cut back on the staffing of full-time employees and turned increasingly to lower-wage irregulars, who today account for nearly 40 percent of the nation’s employed workers.

Some service-sector businesses have long relied on low-cost manpower to survive the competition. But in recent months, wages for part-time workers in restaurant chains have been sharply rising. Some companies in various sectors are moving to promote part-time and other irregular workers to full-time positions in an effort to secure enough employees.

Better working conditions and more stable employment will prompt workers to spend more, and higher earnings of companies as a result of increased consumer spending can result in more wage hikes. Even though it will increase their manpower costs, Japanese firms are urged to raise wages and offer more full-time jobs to achieve this positive cycle.

Some companies will also respond to the tightening labor supply by investing in systems that save on manpower. Such investments will not only generate new demand but also help raise the productivity of those firms, thereby contributing to the growth potential of the Japanese economy.

As the aging of Japan’s population accelerates, the number of working-age people will continue to be on a long-term trend of decline. Last year, the working-age population or the number of people between 15 and 64 years old fell below 80 million for the first time in 32 years.

Labor shortages did not emerge as a problem when the Japanese economy was under deflationary pressures from the 1990s on. It is now coming to the fore as the economy picks up under the Abe administration’s policies. The business model that relies on low-cost labor is not going to be sustainable if Japan is to emerge from its state of deflation. While seeking to increase Japanese companies’ productivity, the government and businesses also need to explore ways to make better use of the nation’s female and elderly workforce.

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