Japan firms hit by labor crunch, many see profits squeezed

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Some 60 percent of Japanese firms are finding it increasingly difficult to secure sufficient workers, hit by a pervasive labor shortage that is pushing up hiring costs and starting to eat into profits, a Reuters poll showed.

Stemming from a rapidly ageing society where immigration is limited, the labor crunch has emerged amid an economic turnaround engineered by Prime Minister Shinzo Abe and threatens to drag on growth.

Some restaurant chains and retailers such as home improvement firm Komeri Co have said they have been forced to rethink expansion plans, while others have actually shut stores. At the same time, a dearth of construction workers needed after the 2011 earthquake and tsunami and ahead of the 2020 Olympics has pushed up building costs for all sectors.

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But even firms that are not as badly affected are worrying about a jump in labor costs, the pressure of having to scramble to attract qualified employees and to retain the ones they have.

"The hiring situation has become very severe," Yoshiki Mori, vice president at retailing giant Aeon Co, said at an earnings briefing last month. He said Aeon is embarking on a range of initiatives to encourage part-timers to work more hours and is looking to employ more retirees and foreigners.

By sector, 80 percent of retail firms and 72 percent of companies in construction and real estate said they were finding it more difficult to secure enough workers, the Reuters Corporate Survey found. Among manufacturers, 70 percent of firms in the auto sector, which includes suppliers, said they are having more difficulty.

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The survey, conducted from Aug. 4-18 by Nikkei Research for Reuters, polled 487 firms capitalized at more than 1 billion yen ($9.6 million) which responded on condition of anonymity. Around 270 firms answered questions on hiring.

Profit pain for some

Asked about the impact of the labor shortage on profits, 44 percent of firms said corporate earnings could be squeezed this financial year, with most of those firms predicting recurring profits could fall between 1 percent and 10 percent.

The remaining 56 percent said they did not expect any impact, with some respondents saying they were able to absorb costs as profits were growing.

"Even though labor costs are rising, this leads to a better life for employees and eventually to increased consumer spending. It is not all bad," wrote an executive at an electronics firm.

One third of respondents said they plan to hire more workers in the next financial year while around 60 percent said they expect the number to be flat.

But for firms unable to secure sufficient workers or pass on the extra costs to customers, the labor shortage will continue to be an intractable problem. Japan's working age population is expected to shrink by 13 million people by 2030 and talk of immigration reform garners little interest in the homogeneous country.

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"From the perspective of 30 to 50 years, maybe there will be a chance to reverse this trend, just like France did, but in the next five to 10 years the trend may continue," said Shintaro Okuno, a partner at consultants Bain & Co Japan, who reviewed the results of the survey.

Japan's economy is expected to grow between 0.3 percent and 0.5 percent this financial year - down from an average 0.7 percent after a hike in the sales tax resulted in a sharp contraction during the April-June quarter.

With Japan keen to curb runaway government debt, Abe must soon decide whether that sales tax hike - from 5 percent to 8 percent - will be followed by another planned increase to 10 percent next year. The survey found that companies were largely resigned to the prospect, with more than half saying it is unavoidable, compared with about one fourth saying Abe should postpone or scrap it.