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Japan's 4m inactive workers put job market at risk of shrinking

May unemployment at 3-year high as job openings take sharpest fall in 46 years

TOKYO -- Japan's low unemployment rate may not remain that way much longer.

The rate rose to 2.9% in May, up from 2.6% the month before, the Statistics Bureau announced on Tuesday. It is the country's highest unemployment rate in three years but still low compared to other countries in Asia and the West. The increase was mainly due to laid-off workers returning to the job market.

In April, the country's unemployment rate was held down by laid-off workers staying home rather than looking for new gigs.

Other countries have seen jobless rates jump into the double digits as governments imposed tough lockdowns in response to the coronavirus pandemic.

"Japan didn't have as severe an outbreak as in other countries, hence didn't need to restrict economic activity as hard," said Junichi Makino, an economist at SMBC Nikko Securities.

Still, the collapse of inbound tourism and the meltdown of exports, especially to the United States, have crippled Japan's economy. Businesses responded by laying off temporary workers and furloughing others with financial support from government employment subsidies.

The May jobs data shows that the number of people on the job decreased by 760,000, to 66.56 million. Of these losses, 610,000 were suffered by temporary workers.

The restaurant, hotel, retail and healthcare sectors suffered the most, as they tend to use more temporary workers; they have also been hit especially hard by the pandemic.

The data also reveals the existence of a large number of inactive workers kept on company payrolls. As of May, these workers totaled 4.2 million, down from 6 million in April but way up from 1.5 million a year earlier. Inactive workers include people on sick or maternity leave but also those kept on payrolls thanks to the government's employment protection program, which lasts through September.

The fate of these furloughed workers depends on how quickly the economy recovers, Shota Muromoto, an analyst at Japan Research Institute said.

"Businesses are keeping workers in furlough, in anticipation of eventual recovery in the economy," Muramoto said. "If the anticipated recovery [does not] materialize, businesses [will] eventually let go of them."

The fact that businesses want to retain these workers reflects their concern about labor shortages. Japan's aging workforce has kept the country's labor pool shallow for a decade now. Prime Minister Shinzo Abe's aggressive stimulus measures have intensified the situation, creating Japan's tightest jobs market in half a century.

The situation is reflected by another indicator, also released on Tuesday.

The ratio of job openings to applicants, a key measure of how plentiful positions are in the labor market, stood at 1.2 in May, down 0.12 of a point from the previous month, according to the labor ministry. It was the sharpest decline since 1974 and brought the gauge to its lowest point in nearly five years.

Still, it shows 120 jobs are available for every 100 job seekers. Construction sites and delivery companies, among other industries, are especially short of hands.

The ratio, an early indicator of the job market, stood at 1.61 for all of 2018, its highest plateau in nearly half a century.

"The weaker hiring reflects a slow recovery of the economy," Muromoto said.

Japan's coronavirus outbreak peaked in mid-April and has been mostly under control since mid-May, allowing restaurants and shops to start hiring again. But the job market could deteriorate if a second wave hits.

"If another outbreak results in a new round of restrictions, businesses would be hard-pressed to keep workers on the payroll," Muromoto said.

The Abe government is now scrambling to prevent that nightmare scenario from becoming a reality by implementing record stimulus packages, trying to prevent a second peak and providing subsidies to businesses that retrain their workers.

The jobs market deteriorated even more sharply outside Japan. In South Korea, the unemployment rate rose to 4.5% in May from 3.8% in April, as businesses slashed hiring to cut costs as exports continue to fall.

In Australia, the unemployment rate rose to 7.1% from 6.4%, as economists point to a risk of it rising to 10%. They cite a weak global economy and a second wave of infections, which "would lead to an extended period of restrictions and even more job losses," says Xiao Chun Xu, an economist at Moody's

In the Philippines, the unemployment rate rose as high as 17.7% in April, a record that reflected one of the most restrictive and the longest lockdowns in Asia under President Rodrigo Duterte, resulting in a severe deterioration in the country's economic conditions.

In the United States, the jobless rate stood at 13.3% in May vs 14.7% in April, as restaurants and bars called workers back after a gradual reopening of the economy, with Moody's predicting that half of the lost jobs will be regained by year-end, bring the unemployment rate down to 10%.

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