Vol. 1. Economic influence and the labor market

June 27nd, 2022 [No. 99 – 2022]

Maita Tatsunobu,
CEO of HR Business Partner Inc.,
Professor of Globis Graduate School of Management

Living with COVID-19 – Japanese style
Vol. 1. Economic influence and the labor market

1.    Short-term effect

2.    Mid-term effect

3.    Long-term effect


In Japan, the COVID-19 pandemic started in January 2020. It has been more than two years since then, and how has Japan changed? And how will the Japanese people, organizations and society be now?

1.    Short-term effect
As most of the countries in the world experienced, Japan has also suffered from a sluggish economy since 2020. According to the International Monetary Fund, the Japanese economic growth rate was a negative 4.5 percent in 2020. The long-distance transportation industry such as airlines lost as much as 80 percent of demand from the previous year. The entertainment and hospitality industries, such as bars, movie theaters, karaoke, and so on, had to close for months.

In Japan, the number of the unemployed had been decreasing consecutively for the previous 10 years, but in 2020 the number finally began to increase. But layoffs or termination is one of the last things Japanese companies do, so the unemployment rate as a whole was still under a certain amount of control. The government also gave financial support for such companies to retain workers despite the fact that there was not much work to do.

People themselves tried to stay, due to the traditional culture of lifetime employment.
It was good in a sense that Japan successfully avoided social instability due to a rise in unemployment, but in another sense, Japan might have missed a historic opportunity to improve labor market liquidity. Old industries, which had a long-lasting problem of excessive workers, ended up unchanged.

In terms of economic evolution, Japan could not use COVID-19 as an opportunity for industrial transformation. In good or bad, the Japanese labor market situation did not change much.

At least partly because of that, Japan has failed to regain economic growth as much as other countries did.  In terms of GDP, Japan has not yet reached to the level of that before COVID-19 (2019), while the US did this as early as in the second quarter of 2021, and the EU in the fourth quarter of 2021.

2.    Mid-term effect
Although Japanese labor did not move either company-wise (to different companies) nor industry-wise (to different industries), not a few of them started to move geography-wise (to different locations). As COVID-19 prevailed, remote work (work-from-home) was introduced to more than half of all companies in Japan.  According to a government survey, 51.8 percent of the respondents had done this as of 2021.

That new policy had a significant impact on Japanese people’s way of thinking and lifestyle.
Before, most working people had no choice but to live in small (and expensive) houses and commute long hours to offices.  Because the Japanese economy was extremely concentrated in a few cities, mostly Tokyo, secondly Osaka, thirdly Nagoya, more than 50 percent of Japan’s population of 120 million have been living in and around these cities. Naturally, rural areas had been losing population, and it has been more and more difficult to sustain local businesses and communities.

COVID-19, however, triggered a reverse effect.  Some working people preferred to return to their hometowns, partly because aged parents there needed to be taken care of.  Some others bought houses or second houses where they could enjoy more space, beautiful nature and quiet ambience.  

3.    Long-term effect
It is widely known that Japan’s population has been declining every year over the past 11 years, and the downtrend has been even accelerated by the effect of the COVID-19 virus.  

People were afraid to become pregnant under such circumstances as hospitals being full of COVID-19 patients. Japan is breaking the record of the lowest number of newborn babies for a straight 6 years, and the number in 2021 was 812,000.  Japan used to have more than 2 million babies every year during 1970s. The total fertility rate, which indicates the number of children a woman gives birth to in her lifetime, was 1.30. It was 0.03 points lower than the previous year and the sixth consecutive year of decline.

The phenomenon of a decline in the number of births under COVID-19 is common to each country, but parts of Europe and the United States are heading toward recovery. In the United States, about 3.66 million births were recorded in 2021, the first increase in seven years. The birth rate was also 1.66, up from 1.64 the previous year. France’s fertility rate in 2021 was 1.83, up from 1.82 in 2020, and Germany is also expected to increase the number of births in 2021.  

Is not only due to COVID-19 but also due to Japan’s political, economic and social elements.
Politically it is pointed out that governmental support is either insufficient of mismatch to change the trend.

Economically, Japanese people’s average income has not increased at all for more than 30 years.  Young people hesitate to have kids. Socially, more and more Japanese people choose to remain single. (And in Japan it is very rare that people give birth to babies outside of marriage.)
Choosing-not-to-marry has been a long-term trend, but COVID-19 has spurred it on.  Now singles have fewer opportunities to meet, date and marry.  In 2021, the number of marriages was about 500,000, which is 100,000 fewer than in 2019, before COVID-19.

This phenomenon will obviously cause further shrinkage of Japan’s labor market in the coming15-20 years.

We all know that Japan is losing labor year after year, but who knows how the situation will be in the near future.