Employers fight for staff as ratio of open jobs to applicants reaches 43-year high

6 hours ago by: Robin Harding in Tokyo

Japan’s labour market is tighter than it was at the peak of the bubble economy in 1990, when the salaryman was king and companies would compete ferociously to hire university students in a contest for staff.

According to data published by the Ministry of Health, Labour and Welfare, the ratio of open jobs to applicants in April hit 1.48, exceeding the bubble peak recorded in July 1990.

It is the highest figure since February 1974, when Japan’s economy was enjoying a spectacular boom before the first oil shock. Companies are now looking for workers after four years of economic stimulus under Prime Minister Shinzo Abe.

But the figure also highlights the central puzzle about Japan’s economy. Despite growing shortages of staff, with shops and restaurants closing because they cannot recruit enough people to stay open, there is still little upward pressure on wages.

That is frustrating the Bank of Japan, which is relying on a tight labour market to drive up wages and in turn push inflation towards its goal of 2 per cent. Prices were up by just 0.4 per cent on a year ago in April.

“When you see the labour market tightening to this extent it’s an indication that there’s a fair amount of inflationary pressure in the pipeline,” said James Malcolm, an economist at UBS in Tokyo. He suggested the tight jobs market could start pushing up inflation later this year.

One important difference compared with the 1990 bubble is that tightness in the labour market is caused by a declining supply of workers rather than rapid growth in jobs. As the baby boom generation retires, Japan’s working age population is falling by about 700,000 a year.

“The number of job offers has increased, especially in medical care and welfare, on the back of a labour shortage rooted in demographics . . . while the number of job applicants has continued to trend downward,” said Barclays analysts Yuichiro Nagai and Yukito Funakubo.  Japan looks to solve puzzle of slow wage growth Drive to cut working hours rather than lift salaries helps keep wages down

Economists have many theories about the lack of wage growth: latent reluctance to pay more after decades of on-and-off deflation; a segmented workforce where many people never change jobs; mismatches between the skills employers want and those of the workers seeking jobs; unexpectedly large numbers of women and foreign workers coming into the labour market; and the pent-up potential for productivity gains allowing companies to adjust their operations rather than pay more for staff.

Ultimately, most analysts think companies will have to raise wages to retain staff, but the relationship between labour market conditions and inflation — known to economists as the Phillips Curve — has been weak across the industrialised world in the wake of the Great Recession.

Japan’s unemployment rate held steady at 2.8 per cent in the latest data. The jobs-to-applicants ratio, since it tends to change slowly, is regarded as one of the best indicators of what is going on in Japan’s labour market. The ratio for part-time staff hit a new high of 1.77 times. However, that remains short of bubble era conditions. The ratio for part-timers peaked at more than four in 1989.

The jobs market is tightest in Tokyo and other big cities. In the capital, the ratio for full-time staff hit a new high of 2.07 times, but on the northern island of Hokkaido it is still 1.09 times, showing the sluggishness of Japan’s regional economies.

By occupation, labour shortages are most severe for roles such as doctors, nurses, care assistants, truck drivers, construction workers, security guards and restaurant staff.