Chart Of The Week: How Tight Is Japan’s Labour Market?

In February, the ratio of job-openings to applicants stood at 1.15. This marks the highest point in almost 25 years. These latest figures should be encouraging, both to the central bank and to the government. However, to what extent is overall wage growth sustainable?

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The shortage of labour is not an economy-wide issue. Sectors such as medicine, care and construction now enjoy more job openings than used to be the case. These are sought after sectors due to the aging population and increased contruction following the earthquake and tsunami that occurred in March 2011. However, the ratio of job openings to applicants in other sectors has remained little changed. As it is not easy for workers to move between sectors, the shortage of workers in some sectors is unlikely to push aggregate wages up.

PM Abe’s campaign to end the country’s prolonged deflationary period hinges on achieving sustainable wage growth. The BoJ also counts on this to reach its 2% CPI target. The rising overall ratio of job-openings to applicants is promising. However, it is only some sectors that are experiencing shortages of labour. There are natural labour market rigidities meaning that a worker with one kind of skill set can struggle to move to an occupation that requires another type of skill set. Therefore, the current scarcity of labour in some sectors of the economy may not be a good indicator of overall wage pressure. We need to see tightness in a wider range of sectors before the labour market as a whole can be considered to be putting upward pressure on wages and inflation.

 
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