Macro Economic Policy on Current Employment Issues in Japan

Abstract

For the first time in the post-war period, issues surrounding employment became inseparable from financial instability. That is, the major recession in the '90s after the collapse of the economic bubble originated from a critical state in which large financial institutions carrying considerable bad loans fell bankrupt. In the autumn of 1997, the ample flow of funds that had been circulating through mortgage fell stagnant when land and stock prices dropped along with the mortgage rate. The effect of this situation immediately spread to all financial institutions throughout Japan. In addition, raising funds overseas became impossible due to a lack of confidence in Japanese institutions. Moreover, instead of lending out money, financial institutions back home had begun to focus on collecting outstanding loans because of insufficient equity capital. Yet, at the end of 1998, Laws of Financial System Stabilization were approved which led to the injection of public funds into large financial institutions at the end of March in 1999. As a result, shortage of funds as well as other problems pertaining to their flow as faced by financial institutions gradually improved.

During the seven years after the period of the economic bubble, business cycle underwent major changes unlike anything experienced in the past. First, striving for improvements in gains, financial institutions and other enterprises with loans enforced radical employment reductions. Second, this was due to the poor results produced by firms in the capital market. Third, during the period of the economic bubble, greater amounts of loans were made out to small and medium-sized firms. As a result, these firms later faced worsening economic deterioration. Fourth, production stagnated due to diminished finance, and demand also dropped. Thus, firms became burdened with over-employment accumulated during the economic bubble period. Fifth, this over-employment led to reforms made in personnel administrative measures, particularly in relation to the wage system, form of employment and welfare of employees. Finally, as the long-term employment system of maintaining employees practiced by Japanese firms began to founder, labor became increasingly mobilized, Therefore, the labor laws are now facing amends to recognize not only regular workers as had been in the past, butalso irregular workers.

Yet, the major transition from a stable employment relationship to increased mobilization of labor has been enough to shake the supporting pillar of the economy. The debate still continues even among scholars over the fixation of labor and the mobilization of labor (derived from a dispute over market-oriented capitalism which is advancing under the term “globalization”).

At present, expectation in relation to macro-economic policy on employment is gradually changing. There are limits to making the policy more effective within a fixed budget, particularly through effective demand policy directed at having the government assuming the role of private enterprises through public investment. This measure probably would have been effective as a short-term, counter-cyclical policy. However, with the current long-term recession brought on by financial instability, the times have shifted to implementing active employment policy, such as heightening occupational capacity of individuals and investing directly in to workers' human capital.