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Saturday, January 22, 2011

The Road Ahead is Still Dark

Picture by Fernado de Souza (flickr-yahoo) - Looking Glass http://bit.ly/gZTxbz
Being the father of an almost graduating University student in Tokyo, an article by Ms. Rie Ishiguro of Reuters-Tokyo - caught my attention a few days ago.  
This prompted me to start a discussion at LinkedIn which I named "The Road Ahead is Still Dark". It pertains to unemployment conditions for young university graduates in Japan.  Dismally 4 out of 10 youth are not hired on their first attempt to join the workforce making them virtually not eligible to pursue higher paying careers as they will be stomped by the graduating crowds following right behind.  This follows the traditional mass recruiting practices of university graduates reminiscing from pre-bubble glory of Japan-Inc. that still pervades in the system.  As a result  a student that has fallen once, is virtually doomed to follow the staff-agency carousel of jobs that leads them into an unpromising future of temporary assignments and very low wages. 
The discussion starts with the mentioned article. A this point it has reached a very insightful Analysis made by Mr. Andrew Brown, of Washington D.C.  Here is the transcript of the discussion starting with Ms. Rie Ishiguro’s article on Reuters.
The Article: 
Analysis: Graduates' jobs gloom bodes ill for Japan recovery  - By Ms. Rie Ishiguro TOKYO | Fri Jan 14, 2011 3:18am EST  (link to the article)
Reuters -
While Japan's jobless rate has been coming down from recession-time peaks unemployment among young people remains near record highs -- a bad omen for the economy in desperate need for domestic drivers of growth.
First, Japanese firms' reluctance to hire young workers reflects their pessimism about the home market and suggests no quick turnaround in business investment.
First, Japanese firms' reluctance to hire young workers reflects their pessimism about the home market and suggests no quick turnaround in business investment.
Secondly, those who miss out on a round of graduate hiring risk being shut out of steady, well-paying jobs later on, perpetuating a vicious cycle of weak consumer demand hurting business sentiment, which in turn leads to more jobs gloom.
"Japan has suffered job losses in past economic downturns but never managed to recover them in up cycles, because the all-important manufacturers did most of the shedding as they relocated production abroad but service sectors were unable to create new jobs due to heavy regulation," said Hisashi Yamada, chief economist at Japan Research Institute.
"Given the economy's continued dependence on manufacturing jobs, this vicious pattern may keep repeating, even though the economy is expected to recover modestly in the near term."
At the face of it, the Japanese jobs numbers don't look bad at all.
The headline jobless rate of just over 5 percent would be an envy of most nations, while youth unemployment at just over double that rate also looks OK compared with an OECD average of nearly 20 percent. In Spain, particularly hard hit by the global financial crisis, four out of 10 young job-seekers were out of work last year.
The difference is that the way big Japanese corporations go about hiring makes it extremely hard to recoup jobs lost in recessions during upswings.
SIDELINED
The practice, dating from the glory days of Japan Inc. and life-long employment, is for big companies to hire school-leavers "in bulk" to replace retiring workers and groom in-house talent and the numbers can vary widely from year to year.
Toyota, for example, hired more than 1,500 graduates last year, nearly halving the intake from the year before and plans to cut it further to 1,200 for the upcoming year. The company may offer more jobs later on, but those who missed out on the current round of hiring will have a slim chance to land one because they will get trumped by fresh graduates.
It leaves thousands of young Japanese sidelined in extended studies, part-time jobs or on the dole instead of supporting the domestic economy as confident consumers and productive workers aging Japan badly needs.
The Bank of Japan's "tankan" business survey has shown strong correlation between graduate hiring and corporate investment, both a reflection of firms' long-term outlook.
And jobs data leave little doubt that corporate Japan remains pessimistic about its home market.
The overall unemployment rate has been steadily declining from its record high of 5.6 percent reached in July 2009 and is expected to dip below 5 percent this year, in part thanks to government incentives for companies to retain workers. But in the 15-24 age group, the jobless rate has been stubbornly stuck around 10 percent.
"Today's young generations have never experienced the bubble economy and they are worried about jobs and future," says Mari Iwashita, chief market economist at Nikko Cordial Securities. "They have never grown a habit of spending extravagantly and this further limits room for expansion in consumption in addition to the shrinking population."
And 18 months since Japan pulled out of recession, those about to hit the labor market have little to look forward to.
"Students increasingly start their job searches very early. This is making me anxious and unable to focus on my graduation thesis," said Kasumi Yasuda, 21, who is due to graduate from Doshisha University in western Japan in spring 2012.
It is not hard to see why. Vacancies awaiting university students have fallen to an all-time low, with just over one job offer available for every two candidates graduating next spring.
Admittedly, young Japanese still favor big corporations as employers because of better pay, prestige and perceived job security. But they also have fewer alternatives than, for example, their European peers because of tightly regulated services sector and market rigidities that make it hard to switch jobs or re-enter labor force after retraining.
And there are signs that Japanese employers will continue to shift their focus abroad, meaning more stress for graduates and little chance for a revival of the domestic economy that the ruling Democrats promised in their 2009 election campaign.
A government study last year showed companies expected economic growth to average at a meager 1.3 percent over the next five years and manufacturers planned to bring the share of overseas production to a fifth of total output from less than 18 percent last year.
"You wonder why companies are not making more use of young workers in an aging society," said Hideo Kumano, chief economist at Dai-ichi Life Research Institute.
"But companies apparently feel they should invest more abroad than at home, because their long-term expectations for domestic growth are still on the decline." (Editing by Tomasz Janowski)
------------ end of article -------------
Here are the discussion threads:
Andrew Brown • An interesting story but the reduction in the rate of pre graduate hires may also indicate that Japan is finally moving away from lifetime hiring and towards a more open job market which allows people to be better matched to jobs and allows for great mobility later in ones career. Not to mention a much more efficient use of labor. 
I find the view, prevalent in Japan these days, that any move away from the old way of doing things is a cause for concern very negative. Also you have to look at the total rate of unemployment in Japan right now (5.1%) which is fantastically low for a nation which has been mired in very low growth for over a decade.
Jason Ball • Good points Andrew. 
Might add though that while the move 'away from' lifetime hiring & the graduate program most Japanese are used to could be viewed as a positive thing by many and in some fundamental ways of looking at it, many in this economy might not view it as a good thing, and any major transition may not only be painful & protracted, but be driven initially by the same financial & business factors faced by most countries in the world at the moment & the very factors, possible implications discussed in the article therefore just as valid...
Cesar Macher • Andrew and Jason good analysis I appreciate your input. Indeed the job market is shifting from the old ways and Japan with an “official” unemployment rate hovering around 5% is comparably not as bad as other countries. Yes this brings us some degree of solace. 
However, 4 out 10 young graduates are missing on their "only good change” to a well paid future and that is the reality… and has been like that and getting worse since Junichiro Koizumi failed structural reforms. There is a systematic dumping of youngsters to the temporary staffing lanes driving these young citizens into a future of uncertainty and low wages.
Hideo Kumano, chief economist at Dai-ichi Life Research Institute, who is mentioned at the end of the article, reminding us that the manufacturing incentives to expand abroad is preventing youngsters to fill the needed jobs to sustain an again society. I feel this is only part of the story… you are welcome to shed more light please.
Andrew Brown • While I agree that the transition away from life time employment and early hiring is going to be both painful and protracted I believe that the light at the end of the proverbial tunnel is getting closer. As the shift begins to accelerate away from the older practices new practices are going to take their place. You do see many young people opt out and go for the lower wage short term employment options but then these are young kids and you see this kind of behavior in the US and elsewhere as well and so far it hasn't crashed the economy or doomed college grads who do not instantly find work to a twilight existence for ever. After a certain amount of time employers will pick up these people and they will find their way into more rewarding jobs. Basically put I think that as the Japanese system moves further away from life time employment and towards a more flexible system people will not only be able to find jobs that suit their interests and talents better but also be able to succeed at a higher level since those mid and upper level positions will now be available to them as the jobs won't be only locked into precedence by date of hire. 
In response to Mr. Macher's point the simple economic truth is that it makes no sense to continue isolating the Japanese market in order to maintain industrial jobs that can much more easily be filled for far lower wages by moving them overseas. It is the old argument does Japan need to still keep manufacturing brooms and screws? I would argue that Japan, over the long term, will find much more economic benefit from employing overseas manufacturing to lower the cost of manufacture for labor intensive items and that if Japan can concentrate on updating its manufacturing capacity and move towards a more service oriented stance (both domestically and beyond) those who lose out on making bicycle tires will be able to find alternative employment in other emerging industries. But the transition is always hard (witness the continuing clamor in America over this same issue).
-------- end of discussion threads ---------
You are welcome to join the discussion at LinkedIn following this link, or if you wish simply add your point of view below. 
Thanks for reading:
Cesar Macher

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