Unemployment in Japan. Causes, Effects and Ways to Overcome

Term Paper, 2022

24 Pages


Table of Contents


Introduction of unemployment rate in Japan

The definition/types of unemployment

The most affected sector of employment within the country

The reasons or causes for the unemployment

The effects for the existence of the unemployment

The ways to overcome the unemployment

Reduce Japan’s unemployment using the monetary and fiscal policy




The team is grateful for having completed the Managerial Economics Assignment which has been an enriching experience all along giving each team member the opportunity to discover how unemployment affects countries, the reasons behind as well as potential solutions to help boost the economy on a wide scale. We have invested many efforts in understanding the concept of the assignment; However, completing this task would not have been possible without the support and guidance of our lecturer and each of our team members.

We would like to express our deepest appreciation to our lecturer, Noor Adila Binti Abd. Raub for her guidance and supervision and for providing the necessary information and resources for this project.

Last but not the least; Alhamdullilah that this project was successfully completed with the aid of all the team members, good health, good team spirit and the guidance from the lecturer.

Introduction of unemployment rate in Japan

The unemployment rate is commonly used for understanding conditions in the labor market. The labor market is the term used by economists about the supply of labor and demand for labor. The unemployment rate also provides on how the economy is performing more generally. Unemployment occurs when someone is willing to work but does not have a job. The unemployment rate is the percentage of people in the labor force who are unemployed. To measure the unemployment rate, it requires to identify the labor force. The labor force includes people who are either employed or unemployed.

The number of unemployed in April 2020 was up by 60,000 and the unemployment rate rose to 2.6% percent. It happens that during the pandemic the unemployment rate in Japan has not been as serious as in other advanced countries by averaging just 2.8% percent in 2020 in Japan.

Below, the graph shows the statistics for the unemployment rate in Japan from 1999 to 2021. Japan unemployment rate was at level 2.8% in 2021, unchanged from the previous year.

Japan is one of the leading countries with economic factors such as agriculture, fishing, manufacturing, and tourism among others. Japan’s GDP per sector is as follows, Services 71.4%, Industry 27.4%, and Agriculture 1.2%. Japan is the third largest economy in the world after the United States and China. Japan is the fourth largest export market after the United States, China, and Germany. Japan has close ties with the United States, European Union, Latin America, Australia, China, and many other countries. Its unemployment rate is lower than other leading countries on level 2.8%. The Japanese hard-working ethics are recognized around the world. It is inseparable from a solid dedication to the organization and to do the job that needs to be done. Competition among coworkers and devotion to the organization are normal and encouraged. The Japanese language even has its own term for sudden death from being exhausted working called “KAROSHI’.

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Figure 1: Japan Unemployment rate from 1999 to 2021 ((EAS) Employment Adjustment Subsidy)

This scheme was originally established during the 1974 oil crisis. This scheme subsidy was extensively used during the Global Financial Crisis. Starting in April 2020 the Japanese government implemented more generous (EAS) terms then during the Global Financial Crisis. It included expanding coverage to all employees and raising the grant rate and reimbursement cap.

Total Employment Adjustment Subsidy payments during the pandemic far exceeded those during the Global Financial Crisis close to 5.4 trillion Japanese Yen in subsidy has been granted. Among industries, manufacturing, accommodation, restaurants, wholesale, and retail were the main recipients. According to the Japanese Government they have approved 5.9 million requests for subsidies to business that were facing employment adjustment due to COVID-19 pandemic. According to Japanese Government estimates, Employment Adjustment Subsidy lowered the unemployment rate about 2.8% percentage.

Today, Japan is among the leading import countries around the world as well as a leading export country around the world. Furthermore, Japan is one of the 20 countries with the largest global domestic product and among the 20 countries with the biggest GDP per capita.

The definition/types of unemployment

Unemployment is the state where a person is unable to find a job even though he or she is actively looking for one. Recently, most countries, including Japan, have been hit hard by the global spread of COVID-19. For Japan, unemployment is undoubtedly one of the most visible effects. However, for the most countries in the world, the types of unemployment can be mainly divided into four components: demand deficient unemployment, frictional unemployment, structural unemployment, and volunteer unemployment:

V Demand deficient unemployment: It is the biggest cause of job losses in recent years due to the COVID-19 pandemic. Meanwhile, to stop the spread of the epidemic, the government has taken a series of measures to prevent citizens from infecting COVID-19, which could lead to an economic recession. As a result, the market demand will decrease, and the company or enterprise will not need too many headcounts. In detail, when demand is much lower, businesses will cut back on spending, lay off workers or stop adding new employees, leaving more people unemployed.

V Frictional unemployment: Compared with demand deficient unemployment, frictional unemployment may be acceptable. It basically means that a person is looking for a new job or a company that will offer him a higher salary or more space to grow, but he should be unemployed for a certain time until he signs the contract after going through the application and interview processes.

V Structural unemployment : It happens when the skills set of a worker does not match the skills demanded by the jobs available, or alternatively when workers are available but are unable to reach the geographical location of the jobs.

V Volunteer unemployment : It happens when a person decides to leave his job, due to some personal reasons, such as the salary does not match what he wants, then he will be unemployed. Volunteer unemployment may not become common due to the COVID-19 pandemic.

In particular, the causes of unemployment cannot be simply ascribed to any one of these four categories but can be combined.

The most affected sector of employment within the country

Japan’s retail and wholesale trade sector emerged as the leading industry in terms of employment in the financial year 2021 while manufacturing sector was the second largest sector of employment in the country.

The Retail and Wholesale Trade

The retail and wholesale industries employ most Japanese workers. This accounts for around 20% of Japan's entire labor force. The manufacturing industry has the second biggest work force, employing little under 20% of the market. On average, roughly 10.6 million people were working in Japan's wholesale and retail trade business in 2021, constituting the economic sector with the greatest number of employed persons. The majority of the sector's employers are small, established businesses, which employ 55% of the sector's workforce. Large-scale merchants are prevented from entering some industries, particularly the food retailing (Statista Research Department, 2022).

Furthermore, foreign direct investment flows have expanded in the trade sector, reaching more than 360 billion yen despite certain regulatory constraints encountered by big merchants. Western European nations including the Netherlands, Germany, the United States, Canada, and Singapore made most of the investments.


In the year 2021, the manufacturing industry employed around 10.4 million people on average. In addition, Japan's manufacturing industry sector, where 482 thousand foreign workers are employed, has the highest proportion of foreign workers in the whole nation. With around 277 thousand employees from other countries, the service sector has the second-highest proportion of international workers. This sector includes food, beverage, and tobacco producers (1.42 million jobs), machinery and equipment manufacturers (1.23 million jobs), transport equipment manufacturers (1.15 million jobs), the fabricated metal products industry (1.04 million jobs), and so on. Most investments came from Western Europe, particularly France, Germany, the Netherlands, and Switzerland, as well as Canadian and American corporations.

Business Services

After wholesale and retail trade and manufacturing, the business services industry is Japan's third largest employer. The business services industry includes a wide range of real estate, rental, and auxiliary business support services such as research and development. Foreign companies participating in Japan's business services industry were mostly based in Belgium, Germany, the United States, Canada, Singapore, and the island states of Bermuda and the Cayman Islands (Employment by Major Economic Activity, 2008).

The reasons or causes for the unemployment

Japan's unemployment rate is exceptionally low, at 2.7 percent in January 2022. Most economists in any other nation would be concerned that it has been this low for a whole year because Japan has been battling deflation for many years, the conventional logic does not apply (Aaron O'Neill, 2022).

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Figure 2: Japan’s unemployment rate

Unemployment has resulted from an economic recession when businesses laid off people. It also has been caused by a mismatch between employees and companies, such as too many attorneys and not enough physicians in each region. Finally, search unemployment refers to the period between leaving one job and starting another. Economists believe that in most circumstances, this is efficient since it allows employers and employees to find the best fit.

Japan's inflation rate has been stubbornly low since the 1990s, occasionally even falling below zero or deflation. This has forced enterprises to postpone investment and consumers to postpone significant purchases, resulting in poor GDP growth.

In addition, while the coronavirus has harmed the country's economy, a combination of social, demographic, and epidemiological factors has slowdown unemployment rate. In April 2020, around three months after China saw the first big outbreak of COVID-19, the Japanese government issued emergency measures that delayed numerous paid jobs. Within a month, Japan's jobless rate jumped by 0.1% to 2.6% (Ben Dooley and Hisako Ueno, 2021).

On the other side, the Japanese labor market began to recover, and the country's unemployment rate has usually been dropping since then, despite occasional ups and downs. Japan has avoided a severe increase in coronavirus infections, allowing it to keep more of its economy open. It requested that companies close voluntarily during a state of emergency that lasted a month and a half and ended in May (The Borgen Project, n.d.).


Excerpt out of 24 pages


Unemployment in Japan. Causes, Effects and Ways to Overcome
Catalog Number
ISBN (Book)
unemployment, japan, causes, effects, ways, overcome
Quote paper
Bandar Hezam (Author), 2022, Unemployment in Japan. Causes, Effects and Ways to Overcome, Munich, GRIN Verlag, https://www.grin.com/document/1328023


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