Towards Structural Reform for Creating New Employment

Jiro USHIO (Chairman and CEO, USHIO INC.)

Current Economic Condition - No Need to Panic

As a result of the recent terrorist attacks, the U.S. economy is bound to shrink in terms of money, trade, consumption and investment, at least for the time being. This will inevitably affect the entire world economy and the Japanese economy in particular, leading to slower growth, higher unemployment and lower stock prices. According to mass media reports, Japan's economy seems to be deteriorating rapidly as the shrinkage of both GDP and employment is accelerating.

However, we do not need to panic. Japan's nominal GDP growth rate has been negative for the last four years. Yet corporate profits have been quite high for the last two years, at least until March this year. This may be partly due to consumers' wide acceptance of lower-priced products resulting from the successful restructuring of the distribution system in Japan. One can feel that the actual price level has declined by about 30 percent in the last five years. During the same period, wage levels seem to have risen by about 7 to 10 percent at large corporations and have stayed almost the same for small businesses. This means that the real standard of living in Japan may have risen by about 30 percent in the last five years.

Regarding unemployment, the most important factor for pushing up the unemployment rate beyond 5 percent was decrease of employment in self-employed and family businesses, while the second most important factor being increase of voluntary unemployment. Though involuntary unemployment is of course attracting much attention, job cut by large corporations will be attained mainly through natural attrition and hiring freezes as well as labor reallocation among group companies.

New Type of Employment Policy

The employment problem is currently discussed at the Council on Economic and Fiscal Policy. As a member of this council representing the private sector, I wish to explain my approach to the employment problem in connection with structural reform.

The purpose of structural reform is to increase efficiency for the entire economy by shifting resources from sectors of low productivity to those of high productivity. In this sense, employment policy should facilitate labor movement from low productivity sectors to high productivity sectors. More specifically, there are three major points in this new type of employment policy: (1) creation and diversification of employment, (2) solution of mismatch of employers' needs and those of job seekers and support for the unemployed, and (3) improvement of the work environment for those who otherwise could not enter the labor market.

First, new employment should be created, especially in the service sector, where there is still room for employment expansion. Our estimate shows that in the next five years there will be approximately 5.3 million more new jobs, particularly in medical, welfare, and other related service sectors. In order to increase employment in the service sector, deregulation and institutional reform are crucially important. Also, there will be a new kind of labor market for social activities by NPOs or NGOs regarding the environment and social welfare issues in the local communities.

It should be emphasized that diversification of employment styles is as important as creation of new employment. It is no longer possible to apply the traditional life-time employment and seniority wage system to all workers, and more flexible arrangements such as contractual, part-time and temporary employment will be more important. Again, it is necessary to fundamentally relax regulations for the entire labor market including employment agencies.

Second, mismatch of employers' needs and those of job seekers should be eliminated and as many kinds of support as possible should be given to the unemployed. The fact is that even though the overall unemployment rate is getting higher, the number of available jobs is exceeding job seekers in 27 out of 60 job categories. To eliminate those mismatches, training and skill development is necessary and such support as a voucher system should be made available to those who want to train themselves.

Third, we need to improve work environment for those who otherwise could not enter the labor market. For example, many women between 25 and 35 years are discouraged from working, since they have to take care of children at home. They can take jobs if adequate nursery and health care services are made available to them.

Structural Reform over Stimulus Policy

Because the economy is ever changing and existing regulations and institutions are bound to get obsolete, we must reform the traditional system to revitalize the economy. Past success has prevented Japan from undertaking necessary reform in the last decades. Following the U.S. model, Japan should have achieved a small government by tax reform and should have energized the economy by encouraging market competition. Needless to say, information disclosure and removal of market barriers are necessary to ensure fair competition and high quality services in the market.

Structural reform may be painful, but we can no longer postpone it as we have done for the last ten years. The pain would become bigger if we adopted economic stimulus measures delaying the necessary reform. There is no alternative. We must act now.