Socioeconomic Indicators in Japan
If you have yet to read Part 1 of this 4 part series you can find it here. Part 2 covers socioeconomic factors such as: the labor force participation rate, household spending, and wage growth. Most socioeconomic factors include a corresponding chart and an observation about the chart data. A summary of all the factors that will be covered in this piece will be provided at the end.
Labor Force Participation Rate
I prefer using the labor force participation rate data instead of the standard unemployment rate data that we routinely see. In my opinion, the labor force participation rate provides a clearer picture of what percentage of the working age population is actually supporting the economy. This metric is calculated as follows:
The labor force participation rate in Japan fell from almost 75% two generations ago, to below 60% after the 2008 financial crisis. It currently sits at approximately 62% in 2020.
Labor Force Participation Rate by Gender
The male labor force participation rate fell from about 83% in 1960 to just under 72% today, for a total reduction of 13%. Conversely, the rate for females has gone from 57% in 1990 to 72% (same as males) today, for an increase of 26% over that time span. If the time series went back further for females than the increase in percentage would likely be much higher. With both genders having to devote their time to work who would be available to rear the children? Furthermore, why has the percentage of women in the labor force increased so significantly over the last few decades? Could increases in the cost of living be a culprit?
The Consumer Price Index (CPI) measures changes in prices for a basket of goods and services. This basket typically contains things like housing, food, utilities, etc. but the items and composition largely depend on how the government wishes to assemble it. The CPI is 5 times higher than it was in the 1960’s but has remained stagnant since the end of the 1990’s.
Household Spending in Japan
“In Japan, household spending refers to the annual change of consumption expenditures (on food, housing, utilities, furniture, clothing, health, education, transport, communication, leisure activities, etc.) in real terms for two-or-more-person households including agricultural, forestry and fisheries households.”
This series only goes back about 20 years, but on net household spending has been on a slight decline over that time-frame. This chart, going back to 2001, fits very nicely with the CPI chart from above. We can observe that the decline in household spending appears to correspond to, or follow, the peak on the CPI chart from the late 1990's where changes in the level of prices went flat.
Japanese Wage Growth
“In Japan, wage growth refers to changes in average cash earnings, including contractual and special cash earnings, in companies with five or more employees.”
Wage growth peaked in the 1970’s and has been trending down ever since. In fact, wage growth has been trending negative since the 2008 financial crisis as shown below.
Average Number of Hours Worked in Japan
This article from the BBC does a good job covering the high number of hours worked in Japan when compared to many other countries. A summary of key points is provided below:
- High cultural expectations in a workaholic society
- Managers do not take time off so it is implied that workers should follow suit; taking fewer days off translates to better standing with management
- Workers only took off 52.4% of paid leave in 2018
- The term “karoshi” was coined in the 1970s and essentially means “death from overwork”
- Western society is individualist and non-hierarchical but Japanese culture is collectivist and hierarchical which means that customs are strongly adhered to by comparison
- Workaholic culture creates mental health issues
- The long working hour culture is a byproduct of the Showa period [1926 to 1989] which romanticised an ideal where men were completely dedicated to company life and had a stay-at-home housewife who took care of the family and all his needs
It is not explicitly stated in the article but implicit is the idea that family formation would be very difficult while dedicating so much time to work. This is no longer only a male phenomenon, females have entered the workforce in droves and are also subjected to the same long hour expectation, as highlighted by the labor force participation rates above.
Key Takeaways on Japan's Socioeconomic Indicators
- Despite the massive increase in the number of females in the workforce the labor force participation rate has trended downward since its peak in the 1970’s. Since the metric considers those between the ages of 15-64, this trend could be explained by the confluence of Japan’s rapidly aging population and/or fewer job opportunities in general.
- CPI, household spending, and wage growth have all stagnanted or declined in recent decades.
- Japanese culture has a tendency toward overwork, and local custom suggests that if management is working overtime then all employees had better do the same.
A no-growth economy where both genders are compelled to work long hours to make ends meet is an economy where child production is difficult, if not impossible. However, the metrics covered above are merely symptoms of the root condition which continues to worsen as time progresses. In next week’s installment, we will cover the cause of these declining socioeconomic indicators, namely the macroeconomic environment.
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