Japan’s lost generation of workers struggles to catch up

Robin Harding
Chris McGrath - Getty Images

You get exactly one chance at success in the Japanese labor market, and as the world economy started to turn downwards in 2007, an 18-year-old Mr Takeda missed his.

His technical high school poured effort into matching its pupils with employers, but as a shy teenager in that year's weak market, he was left without a job — and no way back. Mr Takeda, who does not want his full name published, describes what followed as six years of "black".

"If you don't get recruited first time around it's extremely difficult," says Mr Takeda, who couldn't even get a part-time position. "I didn't have any work experience. Once you have a blank period on your CV it's extremely hard to get a job."

Mr Takeda fell victim to the poisonous combination of a deflationary economy and Japan's lifetime employment system. Lucky school and university leavers get a secure job for the rest of their career. Those who miss out enter a precarious limbo of temporary contracts and part-time work.

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With this kind of work increasingly on the rise in developed countries, Japan is an advanced case study in what happens when a large group of workers is marginalized in this way. Those who missed out on lifetime jobs in the aftermath of Japan's 1990 stock market crash are now in their forties.

"There are many men who couldn't find work when they were young, gave up, and they're now in middle age," says Yuji Genda, a professor at the University of Tokyo.

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There are now around 340,000 Japanese men of prime working age, between 35 and 44 who are out of the labor force — double the level of 20 years ago. "It's become a big social problem," he says.

Students who miss out in the first round of recruitment after leaving education find it impossible to catch up, says Robin Harding.

Mr Genda's research highlights the extremity of what happens to Japanese students who graduate in a bad job market. In the U.S., if the unemployment rate is one percentage point higher at the time of graduation, a high school graduate earns 3 percent less on average.

That disadvantage fades out after a few years. But in Japan, graduating in similar conditions means a 7 percent wage hit on average, and more than a decade later students in that cohort will still be earning 5 to 7 percent less. The brunt of that wage loss is borne by those who did not secure a regular job.

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The polarization of Japan's labor market not only causes hardship for those on the wrong side of the lifetime system — it is also a significant economic problem.

The productivity of temporary staff is lower, the IMF argues, because they are less motivated and companies do not train them.

The fund has urged Shinzo Abe, the prime minister, to prioritize overhauling the jobs market as part of the "third arrow" of Abenomics, his package of structural reforms designed to tackle deflation and boost growth.

The Diet, or parliament, is considering modest reforms, such as letting companies pay professional staff by results instead of hours worked, but nothing that would break down what has become a two-tier market, economists said.