Annual Report on

The Japanese Economy and Public Finance


- Japanese Economy Heading for New Growth Era

with Conditions for Growth Restored -

Cabinet Office

Government of Japan

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Chapter 3

Changes in Environment in the Household Sector and Challenges toward the Strengthening of Human Potential

    Changes have taken place in the environment in the household sector during the current phase of the economic recovery. Employment styles have been diversified, with categories other than regular employees which have constituted the core of typical Japanese employment practice having appeared and which are come to stay. In terms of age bracket, the employment situation for young people is severe. In addition, firms are seen making efforts to reduce labor costs and changing the seniority-based wage system to introduce such as the performance-based wage system. Regarding vocational education and training within firms which has so far been playing an important role in workers' vocational education and training, it is pointed out that, on the whole, this has been downsized and opportunities for vocational education training are diminishing for young people. As an issue to be addressed in the future, it is necessary to seek out measures to strengthen human potential.
    There have also been the arguments that as a result of changes in the environment in the household sector, mainly the above-said changes in employment styles, the economic disparity has widened, and stratification of society has occurred and become an established trend in Japan.
    In this chapter, section 1 summarizes the trend of diversification in employment styles amid the recovery of the employment situation. Section 2 analyzes whether or not changes have been seen in the way vocational education and training should be, according to changes in employment styles, and discusses the way future vocational education and training should be. Section 3 analyzes the trend of the economic disparity. Section 4 summarizes the role which the government should play based on the analyses made so far. Section 5 is a summary of this chapter.

Section 1 Changes in employment styles and their impact

    Progress in the diversification in employment styles can be characterized as a feature of employment situation during the current phase of the economic recovery. Various forms of non-regular employment other than regular employment, which has a stable employment relationship with firms, have been increasing, and the diversification of employment styles has been under way.
    Since the second half of the 1990s, non-regular employment is seen having continued to increase amid a consistent decline in regular employment regardless of the economic phase. Among young people in particular, in addition to a high unemployment rate, non-regular employment has been increasing and the situation is severe. Furthermore, employment conditions are seen varying with regions.
    This section tries to discover the background and problems regarding such issues as the diversification in employment styles, the stringent employment situation among young people, and the trend of employment in various regions, and then gives an outlook for the future.

1. Diversification in employment styles

(About one-third of employees are non-regular employees)
    Even though the economy has continued to recover over a long period, non-regular employment has continued to be on a rising trend while regular employment has decreased.
    The Labour Force Survey, a survey conducted on the household side regarding labor conditions, categorizes regular or non-regular employees based on their workplace. Regular employees mean those who have a direct stable contractual employment relationship with the firm which employs them. In contrast, non-regular employees, including various forms of employment styles such as part-time workers, dispatched workers from temporary labour agencies, contract employees or entrusted employees, are in a contractually unstable condition compared to regular employees in many cases.
    The number of regular employees, following a moderate trend during the second half of the 1990s, has continued to decrease consistently and fell to approximately 33 million persons in 2005. On the other hand, the number of non-regular employees, after posting a decline from the previous year in 1994, rose above 10 million persons in 1995, and reached approximately 16 million persons in 2005. The ratio of non-regular employees (excluding board members) among total workers, after having hovered at around 20% of workers since 1990, had continued to rise since the second half of the 1990s, and in 2005, approximately one out of every three workers was a non-regular employee. (Figure 3-1-1). The overall "phenomenon of non-regular employment styles" has been continuing, with regular employees showing a declining trend and non-regular employees on the rise.
Figure 3-1-1 Trend in the Numbers of Regular and Non-Regular Employees and the Ratio of Non-Regular Employees
    In terms of non-regular employment by industry, the wholesale and retail trade, and restaurants and service industries, that traditionally have a high ratio of non-regular employment, have a relatively higher ratio of non-regular employment than other industries, but recently this ratio has been notably rising in industries like finance and insurance, real estate, and transport and communications as well. On the other hand, regarding the distribution by number of employees, the ratio has been high in firms with a small number of employees for a long time. It is known, however, that the ratio has recently become high at firms with a large number of employees (Appended Figure 3-1).

(Disparity in wages between regular and non-regular employment)
    In terms of disparity in wages between regular and non-regular employment, the disparity has been widening with advancing age until the 50s(1). (Figure 3-1-2). Viewed from the disparity in wages by gender, there is a strong tendency that the older the person is, the wider the disparity is among male workers. For male workers aged until the 20s, non-regular employees' wages account for 80-90% of regular employees' wages and the disparity widens with advancing age due to the seniority-based wage system which consists mainly of regular employees; for people aged until the early 50s, non-regular employees' wages account for approximately 50% of regular employees' wages. In contrast, the disparity in wages among female workers remains almost flat for workers aged 40s or older, with non-regular employees' wages accounting for approximately 60% of regular employees' wages.
Figure 3-1-2 Ratio of Non-Regular Employees' Wages to Regular Employees' Wages

(Currently, full-time employment including dispatched temporary workers and term contract workers is increasing.)
    While the ratio of non-regular employment has been increasing, the ratio of part-time workers(2) has leveled off since 2004. Viewed from the behavior of full-time workers(3) and of part-time workers that are classified according to the criterion of working hours, it is known that the ratio of part-time workers has leveled off (Figure 3-1-3). It is pointed out that the reason for this is that recently, while the number of regular employees has decreased, mainly dispatched temporary workers, term-contracted workers and commissioned workers working on the full-time basis have been increasing.
Figure 3-1-3 Non-Regular Employees in Labour Force Survey and Part-Time Workers in Monthly Labor Survey
    The reason why the ratio of non-regular employees and that of full-time workers have showed a different behavior is attributed to the difference in the definition of the classification of workers. The criterion for classifying a worker as a full-time or a non-regular employee depends on how many hours he/she works, while the classification as regular or non-regular employment is determined by reference to the workplace. In terms of the working hours of non-regular employees, there have been many who work for short working hours a day among part-time workers and casual workers. For those such as dispatched workers from manpower dispatching business establishments, term-contracted workers and commissioned workers, there is almost no difference from regular employees regarding working hours(4). Consequently, dispatched workers and term-contracted workers who work long hours are classified as "non-regular full-time workers." Those who works 35 hours or more a week have increased since 2004, and in contrast, those working less than 35 hours a week have showed rise and decline. Among those working 35 hours or more, the number of non-regular employees whose working hours have remained almost flat for part-time workers and casual workers, while working hours for term-contracted workers, commissioned workers(5) and dispatched temporary workers have notably increased since 2004 as a result of the relevant reformed system(6).

(Increase in non-regular employment is largely due to a rise in the ratio of non-regular employment within each industry)
    The increasing ratio of non-regular employment is attributed to the impact of a rising ratio of non-regular employment within each industry, rather than the influence of a rising ratio of service industries in which the ratio of non-regular employment is relatively high. If the respective factors of change in regular and non-regular employment are broken down into (1) a factor arising from the change in the industrial structure, (2) a factor arising from the change in number of workers employed by all industries, and (3) a factor arising from the change in ratio of non-regular employment within each industry (Figure 3-1-4), then approximately 70% can be explained by the factor referred to in (3), i.e., the change in the ratio of non-regular employment within each industry. The ratio of part-time workers since the 1990s has been consistent with the analysis results based on the Survey on Employment Trends(7).
Figure 3-1-4 Factors of Change in Non-Regular Employees (from 2003 to 2005)
    It should be noted that approximately 20% seems to be contributed by factors arising from the change in industrial structure as well, and this is seen as reflecting the shift towards service industries, whose ratio of non-regular employment account high for a large weight.

(Deregulation has been one of the factors contributing to a high ratio of non-regular employment)
    According to the OECD, throughout the 1990s, non-regular employment showed a rapid expansion in countries including Japan where non-regular employment was significantly deregulated compared to regular employment.
    Regarding the degree of regulation on employment, the OECD has used a numeric index to indicate the stringency of "legislation and practice concerning employee dismissals (Employment Production Legislation: EPL(8))" in industrialized countries. The OECD has shown this numeric value(9) for regular and non-regular employees and the larger this value is, the more stringent regulation on employee dismissals is, i.e. the stronger the degree of protection is. Regarding Japan, Figure 3-1-5 shows that EPL has not changed for regular employment since the second half of the 1980s, with the degree of protection remaining unchanged. On the other hand, regarding non-regular employment, it is known that EPL had dropped since the second half of the 1980s, with the degree of protection becoming weaker. As a result, the difference in EPL between regular and non-regular employment has widened in Japan since the second half of the 1980s. In an international comparison with other OECD members, Japan ranked twelfth in the late 1990s, but has been ranked sixth since the beginning of the 2000s (Appended table 3-2). The OECD has indicated the causal relationship that the larger this difference in EPL between regular and non-regular employment is, the higher the ratio of non-regular employment is(10).
Figure 3-1-5 Impact of Deregulation on Increase in Non-Regular Employees
    The decline in EPL for non-regular employment in Japan is said to be attributed to the fact that the effect of deregulation of manpower dispatching business has been factored in. As non-regular employment has continued to increase in Japan, the ratio of dispatched temporary workers, too, has been rising (Figure 3-1-5 (2)), and accordingly, deregulation can be seen as one of the reasons why the ratio of non-regular employment has increased.

(Utilization of non-regular employment has pushed labor costs down)
    Judged from firms' awareness, there has been an increasingly strong tendency to utilize non-regular employment to reduce labor costs and adjust labor forces. Firms' viewpoints based on the surveys conducted by the Ministry of Health, Labor and Welfare suggest that the ratio of firms regarding labor cost savings as the reason to increase non-regular employment ranged up to approximately 50% recently (Figure 3-1-6).
Figure 3-1-6 Reasons for Utilizing Non-Regular Employees
    In this way, with the reduction in labor costs as the major reason, firms' utilization of non-regular employment has led to a decline in the labor share. Factor analysis for the trend in the labor distribution rate suggests that the factor of wages has worked to push down the labor distribution rate since 2001 (Figure 3-1-7 (1)). In order to examine this factor of wages in detail, the trend in contractual cash earnings can be broken down into the factors of change in full-time workers and of part-time workers and the ratio of part-time workers, and it is known that wages have been significantly pushed down by the high ratio of part-time workers (Figure 3-1-7 (2)). This shows that the high ratio of part-time workers has contributed to pushing down the wage level as a whole due to an increase in part-time workers with a relatively low wage level, and this effect has consistently continued. However, it also suggests that around 2001, contractual cash earnings of part-time workers including regular employees, too, worked as a downward force, and there was once a phase of wage cut. Recently, as the ratio of part-time workers is no longer seen having contributed to pushing down wages, this thus infers that the round of labor cost reduction by firms has come to a pause.
Figure 3-1-7 Utilization of Non-Regular Employees and Their Wages

(High percentage among non-regular employees, mainly women and elderly people, who want to continue their current employment styles)
    Non-regular employees' perception of their current employment styles suggests that the percentage of women and elderly people that want to continue their current employment styles is relatively high. According to the General Survey on Actual Conditions of Diversification in Employment Styles, conducted by the Ministry of Health, Labor and Welfare, 65% of the total respondents replied "want to continue the current employment style" in 2003 (Figure 3-1-8 (1)). By gender, 57% of the male respondents and 69% of the female respondents replied in this way. By age, more than 80% of the respondents aged 60 or older wanted their current employment conditions to continue. Respondents in their 30s or older, of whom women accounted for approximately 80%, replied that the higher the age is, the more they wanted to continue their current employment styles(11)(12).
Figure 3-1-8 Non-Regular Employees' Awareness of Their Current Employment Styles

(Many non-regular employees wanting to become regular employees among the young generation)
    On the other hand, the same survey above shows that among young people that are non-regular employees, there are many who want to change from their current employment styles and that many of them want to become regular employees. Those who replied "want to continue the current employment style" accounted for approximately 50% of respondents in their 10s and approximately 40% of respondents in their 20s, and among the respondents in their 30s or above, the percentage became lower. Most of these people wanted to become regular employees.
    By employment style, there were more respondents that replied "want to continue the current employment style" among the dispatched temporary workers and term-contracted workers than among the part-time workers. (Figure 3-1-8 (2))

(Non-regular employees have few opportunities for promotion and wage raise)
    What lies behind the tendency for young generations not satisfied with non-regular employment can be attributed to the fact that compared to regular employment, there are unfavorable conditions for non-regular employees.
    Non-regular employees are considered to have few opportunities for promotion and wage raise. According to the General Survey on Actual Conditions of Diversification in Employment Styles, conducted by the Ministry of Health, Labor and Welfare, nearly 60% of firms had a system of promotion and wage raises in place for regular employees, but such a system was available in only approximately 20% of the firms for non-regular employees. For other employment styles (Figure 3-1-9) the percentage was even lower. Such a condition is a concern for young generations in the sense that this makes it difficult for them to form any reliable future wage expectation.
Figure 3-1-9 Percentage of Firms with or without a System of Promotion by Different Employment Styles

(Firms are reluctant to develop the human resources for non-regular employees with low career stability)
    There is a difference, even in human resources development, between regular and non-regular employees. In the Questionnaire Survey concerning Human Resources Development by Corporations(13) conducted by the Cabinet Office, firms were asked about their way of thinking about human resources development. According to the replies to the question about which groups should be focused on for human resources development from the viewpoint of enhancing productivity, the percentage was high in the descending order of job site leaders, supervisors and regular employees on the job site, but there were extremely few firms replying that it was important to consider non-regular employees on the job site to be important for human resource development (Figure 3-1-10). Although it is also necessary to note that regular and non-regular employees may possibly have different needs for vocational education and training, as they have different job descriptions, the result above may reflect the trend that firms have not placed much emphasis on human resources development for non-regular employees.
Figure 3-1-10 Workers to Be Focused on for Firm's Human Resources Development
    The reason is considered to lie in the idea that non-regular employees have low career stability. According to the survey conducted by the Cabinet Office, many firms pointed out such career instability as a problem for hiring non-regular employees (Figure 3-1-11). Even if a firm undertakes costs to provide vocational education and training, such investment would be futile if its employees quit their jobs. There is also a possibility that the increase in non-regular employees might have had an influence on the way of firms' vocational education and training.
Figure 3-1-11 Problems Hiring Non-Regular Employees

(Future prospects of diversification in employment styles)
    Amid the prolonged economic recovery, the pressure to increase non-regular employment for the purpose of reducing labor costs through corporate restructuring has weakened. Some firms have also started to increase regular employees in the form of coping with the tightened labor market along with the economic recovery(14).
    Regarding the policy of regular and non-regular employment in the future, the corporate survey conducted recently (in early 2005) by The Japan Institute for Labor Policy and Training which investigated firms' way of thinking (Figure 3-1-12), shows that firms replying that regular employees decreased during the past three years significantly outpaced those replying "increased" or "unchanged." Nevertheless, regarding the period ahead, there were more firms replying that they would not increase regular employment or that they would maintain the current condition than those replying "will reduce." At the same time, regarding non-regular employees, firms replying "will not increase" or "will maintain the current condition," based on the actual results of the recent three years and the outlook for the next three years, remained almost unchanged. But the pace of increase was considered to significantly slow down in the next three years(15). Overall, regarding the increase in non-regular employment, it has become such a situation that, partly also due to factors of structural changes, such as economic globalization and the advancement of information technology(16), non-regular employees will continue to be utilized in the future as well, but regular employment, too, can be expected to recover.
Figure 3-1-12 The Number of Employees in the Past Three Years and The Outlook for the Next Three Years
    Regarding the household sector, too, as seen in the above, there exist groups, mainly women and elderly people, who want to continue their non-regular employment style. On the other hand, non-regular employment style is not a satisfactory condition for the young generation who are just at a time to strengthen their human potential for the future. Although there have been signs of a future recovery in regular employment, it is necessary to examine the difficult situation faced by the young generation from various perspectives.

2. Severe employment situation for young generations

(Young generations' unemployment still remains at a high level though improving)
    The unemployment rate for young generations rose rapidly from the mid 1990s, standing at 10.1% for young people aged 15-24 years and at 6.4% for those aged 25-34 years, with both reaching a peak. After that, it started to drop, but still remained at a high level if compared to the overall unemployment rate (4.4%), at 8.7% for those aged 15-24 years and at 5.6% for those aged 25-34 years. Thus, the employment situation for young generation remains severe (Figure 3-1-13).
Figure 3-1-13 Unemployed Persons by Age
    By gender, the unemployment rate for both men and women aged 15-34 years (for men in 2003 and for women in 2002) improved 1-2% points from the peak level but was higher than the overall unemployment rate. In particular, the unemployment rate for men aged 15-24 years still stood at nearly 10% (Appended Figure 3-3).
    The number of long-term unemployed persons dropped whether viewed as a whole or by age bracket. However, long-term unemployed young people aged 25-34 years were still the largest age bracket, accounting for a percentage around 30% of the total long-term unemployed persons.

(Young generations' unemployment rate remains high due to structural factors)
    The condition of a continuing high unemployment rate for young generations can tentatively be broken down into two factors, one as a structural factor and the other as a cyclical factor, through analysis using the UV curve by age. The data show that the unemployment rate for the young generation had risen, due mainly to the structural factor since the second half of the 1990s (Figure 3-1-14). They show that the rise in the unemployment rate for young generations, though influenced by the economy to some extent, was basically attributed to the rise in the structural unemployment rate.
Figure 3-1-14 UV Curve by Age Bracket

(Trends in young non-regular employees such as freeters and NEET)
    Factors such as prolonged unemployment for young people and an increasingly high ratio of non-regular employment, which generally has low career stability, are raised as the reasons why the unemployment rate has become high for young generations.
    Non-regular employees and those who want to be so among young generations continue to show a rising trend. Part-time workers or casual workers aged 15-34 years and those who want to be so (referred to as freeters(17) hereinafter) numbered 2.01 million in 2005 (Figure 3-1-15). Compared to the previous year, the number was down 130,000 persons in 2005, dropping for the second consecutive year. However, non-regular employees, including dispatched temporary workers and term-contracted workers, as well as part-time workers and casual workers, and those who want to be so, numbered 3.6 million in 2005, posting an increase from the previous year. The two trends have shown that the continuing increase in dispatched temporary workers, term-contracted workers and those who want to be so among non-regular employment, i.e., those other than freeters, in 2005 too, may have led to an increase in young non-regular employees and those who want to be so.
Figure 3-1-15 Trends in Freeters, Non-Regular Employees (Including Those Who Want to Be So) and NEET among Young Generations
    On the other hand, those aged 15-34 who are not housewives (house husbands) or school students (NEET) show no signs of improvement. According to the survey by the Ministry of Health, Labor and Welfare, the number of NEET have remained flat for the fourth consecutive year, but if viewed from the beginning of the 1990s, they increased from 400,000 persons in 1993 to 640,000 persons in 2005(18). The duration of remaining jobless has been prolonged(19) even if compared to young unemployed persons in the labor market, and thus the increase in these persons is a cause for concern, in the sense of their not having entered the labor market or preventing the build-up of vocational skills.

(There is also the possibility that young generations may have become unemployed because there have been no jobs that they desire)
    According to the analysis of the Labour Force Survey, the increasingly high structural unemployment rate for young generations may have been recently related to an increase in the number of persons who became unemployed for the reason that there were no jobs that they desired, regardless of their intention or otherwise to be a regular employee.
    If the reason why the unemployed could not find a job is categorized by age bracket, those who answered "there is no job I want" have increased since 1999, standing at a relatively high level among persons aged 15-34 years, (Figure 3-1-16). Unemployment for the reason that "there is no job I want," mainly among young people, in contrast to unemployment for the cyclical factor reason of "I don't care too much about the conditions, but there is no job for me," is considered to be the structural factor.
Figure 3-1-16 Trends in the Number of Unemployed Persons in Terms of Reasons for Unemployment and Employment Styles Desired by Unemployed Persons
    One of the reasons why awareness has changed in this way is considered to be the possibility that those who answered "there is no job I want" may have increased as young unemployed people have become selective to regular employment. However, according to the breakdown of the employment styles preferred by young unemployed people, the percentage of those desiring regular employment has dropped from 1999. This fact rules out the above viewpoint. It is considered as possible to interpret that young generations care more about their job content than the employment style, and consequently those who reply "there is no job I want" have increased.
    What is considered to lie behind this change in the structure of unemployment is possibly that though there exist mismatches of employment style mainly for young generations, a widening mismatch in terms of job field and job content may have also had a strong impact.

(It has become difficult for people like freeters to move from non-regular employment)
    Statistics suggest that in recent years, it has become difficult for young non-regular employees as represented by freeters to shift to regular employment. If the number of freeters is categorized by age, freeters aged 15-24 years have been stable at around 1 million since 1997, and those aged 25-34, the age bracket above that, rose nearly 100% from 490,000 persons in 1997 to 910,000 persons in 2002, subsequently staying at this high level (the above Figure 3-1-15).
    Furthermore, the results of the survey conducted on firms show that when firms hire freeters as regular employees, they make harsh evaluation of his/her experience. According to the Survey on Employment Management, by the Ministry of Health, Labour and Welfare, firms that made a "negative evaluation" of freeters accounted for 30%, but those making a "positive evaluation" accounted for around 3%, with almost no firm making a positive evaluation. Regarding the reasons for the "negative evaluation," while there were nearly 80% of the firms replying "lack perseverance," there was an increasing percentage of firms replying "lack skills and knowledge corresponding to age." In addition, regarding freeters aged 30 years or older, the results show that there were many firms replying that they were reluctant to recruit freeters as regular employees(20) (Figure 3-1-17).
Figure 3-1-17 Evaluation of Freeters' Experience When firms' Recruiting Them as Regular Employees
    If changes in workers' employment styles are revealed statistically, it is shown that, compared to young generations in the past, it has become more difficult to transfer to regular employment. From the results of the Questionnaire Survey on Household Economy(21) conducted by the Cabinet Office this time, it can be confirmed by using the method of survival analysis(22) how difficult it is to shift from non-regular employee status. In this survey, men and women of a wide range of age brackets were asked questions on changes in employment conditions. The results calculating the probability that people who adopted non-regular employment as their first employment style could not become a regular employee suggests that regarding those now aged 35 years or older and those now under 35 years, the probability of being unable to become a regular employee is 10-20% higher for both men and women now aged under 35 years (Figure 3-1-18).
Figure 3-1-18 Probability of Remaining a Non-Regular Employees

(Jobless people and those living together with their parents of the middle and upper age groups have increased)
    From the recent surveys it is clearly known that the ratio of middle-aged jobless people has increased. This is considered as an influence of the prolonged economic stagnation.
    According to the Research Study on Young People's Employment aggregated by the Cabinet Office about the trends in jobless people of the middle and upper age(23), since the 1990s, jobless people of the middle and upper age (defined as jobless people aged 35-49 years) had accounted for 3.7% of the said age group. Compared to 1.9% in 1992, such jobless people doubled. The breakdown shows that there were jobless people of the "job seeking type," "non-job-seeking type" and "no-intention type." The breakdown of jobless people of the middle and upper age in 2002 shows that in addition to jobless people of the "job-seeking type" which had consistently increased since the 1990s, in 2002 there was also a high ratio of jobless people of the "non-job-seeking type" and "not-intend type" (for the definition of the breakdown of jobless people, refer to footnote 20) (Figure 3-1-19 (1)).
Figure 3-1-19 Jobless People in the Middle and Upper Age Brackets and Those Living with Their Parents
    People in the middle and upper age groups living together with their parents, have also increased. According to the trends shown in the Employment Status Survey, such persons aged 40 years or older have increased steadily (Figure 3-1-19 (2)).
    In sum, generations that have experienced the 1990s, when the employment situation was severe, seem to be facing difficulties in becoming employed. Therefore, together with closely monitoring the trends in such middle and upper age groups, new policies are seen necessary for skills development, so that the work conditions seen for the middle and upper age brackets will not recur for the current young people presently facing severe employment conditions.

(Outlook for the future)
    Regarding young non-regular employees including freeters, if they still remain as non-regular employees even when becoming middle aged or older, there will be serious losses of income, and its impact on the Japanese economy causes concern. Regarding the concept on firms' vocational education and training for non-regular employees, as was explained in the above section, as firms have a low awareness for providing non-regular employees with opportunities for vocational education and training, there is concern that those who have become non-regular employees will be unable to develop their vocational skills at an early age, for which vocational education and training is regarded as necessary in particular. As was seen in the above, the fact that it has become difficult to change from being a freeter, too, causes a concern that freeters nowadays may have an impact on the Japanese economy in the future(24).
    Even in terms of lifetime wages per worker, if a comparison is made between regular employees and those other than regular employees, and further part-time workers, it is confirmed that there is a disparity between them (Figure 3-1-20 (1)). As a macro impact, if the impact of young non-regular employees (and those want to be so) on the economy is calculated as imputed lost income resulting from not being a regular employee, then the impact of 3.6 million young non-regular employees (including those who want to be so) would tentatively be 6.2 trillion yen (price in 2005, a ratio of approximately 1.2% to GDP). Among these 3.6 million persons, if imputed lost income resulting from not being a regular employee is tentatively calculated on the assumption that the probability they may remain a non-regular employee even after becoming middle aged or older is the same as now, such losses would tentatively be 4.7 trillion yen in 2015 when they become 25-44 years old (price in 2005, a ratio of 0.9% to GDP) and 4.2 trillion yen in 2025 when they become 35-54 years old (price of 2005, a ratio of 0.8% to GDP) (Figure 3-1-20 (2)) (25).
Figure 3-1-20 Impact of Non-Regular Employment of Young People on the Economy
    The number of freeters has been decreasing recently but remains at a level exceeding 2 million persons, so measures need to be taken. In addition, for those who were new graduates when recruitment of new graduates as regular employees was curbed under severe employment situation in the past, there is a possibility that they may face severe conditions in the future, and measures should be taken as well to provide them with opportunities to transfer from non-regular employment to regular employment (refer to Section 4).

3. Employment in various regions

(The employment situation is still seen varying with regions)
    Regarding the employment situation in various regions, though improvement is seen taking place in some regions, the condition of recovery varies with each. In terms of the unemployment rate by region block in 2005, in contrast to an average of 4.4% on a nationwide basis, the unemployment rate in the blocks of Kinki, Kyushu, Tohoku and Hokkaido were higher than the national average, and reached the 5% range. Compared to 2002, which was the recent trough of the economy, the unemployment rate showed improvement in Kinki (down 1.5%) and Minami-Kanto (down 1.1%) and also in other regions where unemployment improved nearly 0.6-1.0% (Figure 3-1-21 (1)).
Figure 3-1-21 Employment Situation in Various Regions
    Although clear improvement has been seen in various regions, the employment situation is still seen varying with regions. The coefficient of variance(26) of the unemployment rate in terms of the trend of the unemployment rate among regions has remained almost flat on a long-term basis. Even recently it has experienced ups and downs, without showing any clear tendency to shrink (Figure 3-1-21 (2)).

(The employment situation continues to be an issue that should be addressed amid the prolonged economic recovery)
    The rise in the unemployment rate by region from 1997 to 2002 was due to the fact that a decline in the ratio of employed persons among the labor force population contributed to pushing up the unemployment rate, but at the same time, the pressure to push up the unemployment rate was also seen to have eased to a certain extent by the fact that an increasing number of people stopped looking for work and exited the labor market. Nonetheless, since 2002, the ratio of unemployment has continued to rise slowly amid a declining ratio accounted for by employed persons among the labor force population. The condition in recent year shows that a rise in the ratio accounted for by people who work among the labor force population has pushed down the unemployment rate in all regions, with changes being seen taking place in the trend of the employment situation (Appended Figure 3-5).
    However, no changes have been seen in the age structure or labor mobility, a factor which is considered to have an impact on the employment situation in various regions. If the recent condition is compared to 2002, the year right after the current phase of economic recovery started, it remains unchanged that labor mobility among regions is slight per se, hence not to an extent of having an impact on the unemployment rate in a region (Figure 3-1-22). It also remains that the higher the ratio of young people in a region is, the higher the unemployment rate. The high unemployment rate for young people viewed on a nationwide basis has also been reflected in the unemployment rate in various regions.
Figure 3-1-22 Relationship among Population Composition, Labor Mobility, and Unemployment Rates

Column 7

Situation regarding Germany's acceptance of foreign workers

    This section has covered the diversification in employment styles, like an increase in non-regular employment since the second half of the 1990s. On the other hand, the number of foreign workers has continued to increase over the same period. The number of foreign workers, excluding those overstaying their visas, rose from 320,000 persons in 1995 to 570,000 persons in 2003. The fact that foreign workers have been utilized for the purpose of reducing labor costs through corporate restructuring is considered to have contributed to this increase(27). Although such pressure for restructuring has weakened, there are still active arguments about foreign workers in Japan. Here below is an overview of the short-term or the mid- and long-term impact of foreign workers in Germany which has a longer history of taking in foreigners.

Historic background
    Former West Germany started to take in foreign workers in an experimental way according to the bilateral agreement with Italy in 1955. But West Germany faced the severe labor shortage, as the population inflow from East Germany stopped due to the building of the Berlin Wall in 1961. In order to cope with this problem, the bilateral agreement was expanded to cover countries such as Portugal and Turkey, and progress was made in taking in foreign workers. During the late 1960s, West Germany took in around one million Turkish workers. With the oil crisis in 1973 as a start, West Germany decided on the basic policy of ceasing to recruit foreign workers. However, it was unrealistic to completely cease taking in foreign workers, and under special conditions, it continued to accept workers with occupational categories such as specialists and technical personnel. After the unification of East and West Germany, in order to strengthen the relationship with Eastern European countries, Germany took in foreign workers based on bilateral agreements with those countries. Meanwhile, for fields requiring a high level of specialized knowledge such as IT, Germany introduced the green card-based work permit system for IT engineers in 2002 in order to secure highly professional personnel.

How Germany has taken in foreign workers
    Currently, there are approximately 6.8 million foreigners living in Germany, accounting for 8.2% of the total population. The great number of unskilled workers accepted from Turkey for the purpose of solving the problem of labor shortages during the post-war period of high economic growth settled down in Germany, and failing to blend into German society, they have become a factor of social instability, such as the formation of many Turkish communities nowadays consisting of the second and third generations who are unable to speak German. On the other hand, the working age population is expected to rapidly decline as a result of the acceleration of demographic aging, and whether it is correct to take in immigrants and how immigrants can blend into German society has become an important issue. There is even a forecast that to be able to maintain the same working age population that existed in 2000 (40.35 million persons) 40 years later in 2040, it will be necessary to take in 500,000 immigrants each year.

Formulation of new immigration law
    Amid active arguments about the issue of immigration, while the business community demanded that the framework to take in foreigners with professional skills be expanded, CDU/CSU, the opposition parties, addressed the necessity of "comprehensive legislation" that also included strict regulations on abusers of the institution, and under these circumstances, in order to examine the new immigration policy, the government set up, in July 2001, an immigration council (Sussmuth Commission) consisting of non-partisan members such as political circles, the business community, labor leadership and specialists of population, labor and foreigners law and held concentrated discussions on new policy regarding immigration and foreign workers. The Council put forward a summarized report in July 2001 and made proposals like the following: (1) the taking in of foreigners should not be inconsistent with domestic efforts to reduce unemployment, (2) the taking in of foreign workers should not thwart domestic efforts for education and training, (3) the taking in of foreigners should enhance the potential capacity of the economy as a whole, (4) the country where a foreigner is from should also be taken into account, and (5) foreigners that are taken in for economic and demographic reasons should be chosen in such a way so that they can successfully blend into society and the labor market.
    Based on this report, a new immigration legislative bill was put forward in August 2001, and as a result of deliberations, it was passed by the Bundestag and Bundesrat in March 2002 and was scheduled for enforcement in January 2003. However, the voting method at the Bundesrat was determined as unconstitutional by the constitutional court, and after that, as a result of repeated adjustment between the governing and opposition parties, it was passed in July 2004. Regarding the brief summary of the new immigration law, while comprehensively stipulating policy to further encourage long-stay foreigners and immigrants to assimilate into society, the new law also gave top priority to the promotion of job opportunities for domestic unemployed persons in Germany; regarding economic immigration, the law set the condition that immigrants should have a high level of skills or knowledge highly needed by society; regarding other types of immigration, it made clear the selective taking in of immigrants, e.g., except for those to be taken in according to the bilateral agreement, other types of immigration are in fact closed up, whereas in order to enhance economic competitiveness, a permanent resident permit without a time limit will be issued to specialized and highly qualified workers. According to the new law, self-employed foreigners, too, will enjoy preferential treatment on the condition that they create opportunities for domestic employment.

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