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Japanese labor crunch hits service sectors the hardest

Construction, transport also feeling the pinch; banks unaffected

Service industries in Japan, such as delivery services and restaurants, are being hit hard by labor shortages.

TOKYO -- Japan's crippling worker shortage is hitting industries selectively, with businesses heavily reliant on human labor, such as restaurants, builders and shipping companies feeling the most pressure.

The Bank of Japan's latest quarterly survey of business sentiment, released Monday, pointed to such a lopsided impact. The hospitality and restaurant sector had a diffusion index reading of minus 62, after subtracting the percentage share of respondents reporting "insufficient employment" from those citing "excessive employment."

That is the worst reading since the categories covered by the survey -- known as the Tankan -- were revised in 2004.

Similarly, the transport and postal industry had a reading of minus 47, a record for the sector even when including the asset-bubble period of the late 1980s and early '90s.

The labor markets for retail and construction also tightened further, continuing a trend that began around 2011.

"They are labor-intensive industries where it is difficult to replace operations with information technology or machinery, and there are high percentages of part-timers," said Toru Suehiro at Mizuho Securities.

On top of that, the domestic economy is recovering and online sales are booming. Feeling the squeeze, the package delivery industry is hiking fees and taking other steps to cope.

During the first 11 months of this year, 294 companies went out of business due to a shortage of workers, according to Tokyo Shoko Research. Despite the fact that less outfits are folding overall, the number of labor-intensive business failures stayed roughly the same from a year earlier.

The construction and service industries account for half these cases. These businesses are often small and not in a position to raise wages or pass extra costs on to prices.

Weathering the storm

The labor crunch has hit the manufacturing industry as well, but companies there have managed to soften the blow. The diffusion index for the electric machinery sector stands at minus 20, an improvement from the all-time low of minus 47 seen during the bubble period.

This time around, manufacturers benefit from the sheer number of work processes that can be managed by IT or through robotic solutions. This industry is also locating more production overseas. Many companies are believed to be able to handle increased orders by leaning more heavily on existing equipment.

The three Japanese megabanks have attained a wealth of workers through past hiring binges.

The banking industry has a diffusion index of minus 4, with the number hovering near zero for the past five years. Because of past hiring sprees, like one during the bubble period, the sector has built up a deep roster of talent.

IT innovations have also reportedly reduced job duties. Japan's three megabanks plan to automate work currently being performed by over 30,000 people.

In theory, the labor market should be able to efficiently reassign workers in industries flush with workers to sectors hurting for employees. But the technical requirements, and the disparities in compensation, are proving to be barriers.

"The less an industry has to offer in terms of added value and wages, the stronger the impact it feels of a manpower shortage," said Hisashi Yamada, chief economist at the Japan Research Institute.

It was only a few years ago when "black companies" were able to get away with low pay and harsh working conditions. Even if corporate productivity was slim, those enterprises could eke out a profit by exploiting a cheap labor force. But the economic recovery created a sea change in the labor market.

Employers are moving to curb the rising labor costs. Home delivery giant Yamato Transport, a Yamato Holdings unit, is limiting total package volume through various means. Restaurants and retailers are ending unprofitable services, such as late-night business hours.

"If corporations attempt to advance employment mobility without addressing low profitability, that's not a recipe for labor market revitalization," said Yamada.


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