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how the economy affects job prospects.jpg

It’s no surprise that a bad economy affects job prospects. The economy works in cycles, there are periods of highs, and periods of lows. How significant is this trend in Japan? When observing the unemployment rate of Japan - and comparing statistical trends to the Japanese stock market performance, a trend becomes visible. As the stock market rises we see a considerable, downward shift in the Japanese unemployment rate. This inverse relationship is an economic keystone; when the economy is healthy, the job market is also better and as consumer spending increases, wages tend to rise. This helps new employees who enter the job market find quality paying positions at good firms. Let's take a look at how a bad economy affects the job market in Japan, and observe what happens during recessions, with a focus on the 2008 recession, and a glimpse into the 2011 tohoku earthquake and tsunami.

The graphs below indicate as the stock market (blue) rises, the unemployment rate (orange) tends to fall. Looking at the graphs it is important to also consider the timing of the 2008 recession. We can clearly see the unemployment spike in 2009 and also see stock performance tumble, the two share a very real correlation.

Unemployment


stock market

Source: Japan Macro Advisors, Macrotrends


Consumer Confidence Economic effects

A bad economy affects consumer confidence in a very real way. Much like stock market performance and the unemployment rate, there is also a clear relation between higher levels of consumer confidence and a lower unemployment numbers. Consumer confidence, “measures how optimistic or pessimistic consumers are with respect to the economy in the near future” according to investopedia. When charted on top of one another, the graphs display similar results . This phenomenon is demonstrated by the below graphs. One can see that generally as unemployment falls, consumer confidence rises.

Unemployment

National cpi

Source: Japan Macro Advisors

 

2008 recession and the effect on GDP and Employment

Japan was significantly affected by GDP loss after the United States housing market collapse of 2008. Interestingly, the graph below indicates that though the unemployment rate did not rise significantly following the recession, real GDP had a strong negative regression of over 8%. This significant jolt could potentially replay in the coming years following many years of healthy economic output in the United States, which must eventually lead to a downward economic slump. Besides China, the United States is Japan’s largest trading partner, and the nation stands to be significantly affected by the economic health of the United States. Japan has displayed constant rigid employment, due to many labor shortages across varying industries, and experienced less unemployment following an economic crisis than many other OECD nations. Additionally, Japan has significant levels of debt compared to GDP, and these levels are the highest across the world at over 200% of GDP. However, The situation is different from that of other nations because the debt is borrowed through Japanese citizens.

global recession on gdp

Source: Tokyo Foundation


2011 Fukushima Earthquake

Much like the shock that occurred in 2008, a significant economic shock occurred much closer to home, in North East Japan. However, with this disaster being a natural disaster, and not a traditional market retraction the Japanese economy reacted differently in some ways then other financial crisis. This shock, the earthquake and following tsunami, resulting in a Fukushima nuclear reactor crisis--caused a serious economic downturn. This disaster is considered the most expensive natural disaster in history, and cost an estimated $235 billion, though many agree the number is much higher. The disaster resulted in the deaths of over 16,000 people, and the relocation of hundreds of thousands of people. This tremendous misfortune caused ripples throughout the economy. Immediately after the disaster, the affected area saw huge unemployment, and power outages causing tremendous speculation and fear throughout many areas of Japan. Following the tsunami, a considerable drop in consumer spending, and an economic downturn left the nation in a weak position. This drop in consumer spending stagnated the economy, which resulted in less production and mounting debt. Overall, the nation's unemployment rate did not fall on the macro level, likely due to an already mounting labor shortage, and need for rebuilding personnel. 

japans unemployment rateSource: Nippon.com

 

New Graduates and Junior Employees

For new graduates, graduating university in a “bear market,” or an unimpressive economic market can drastically hurt earnings. According to the National Bureau of Economic Research, “students who graduate during a recession have more difficulty finding a job that fits.” Additionally, as the Canadian study notes, wages lower considerably for employees who graduate university during a recession. Students who graduate during a recession see a loss of “9 percent of annual earnings in the initial stage, [which] eventually recedes, but slowly.” These lower earnings can take years to rebound, “halving within five years but not disappearing until about ten years after graduation.” The effects of a recession are felt more so by new employees and less skilled employees than middle managers or directors, this study demonstrates. Lets keep in mind that these studies reflect Canadian trends, and Japan may react somewhat differently.

Management and More Senior Roles Job Security

Overall a bad economy negatively affects job prospects in a significant way, especially those out of work when an economy begins to contract. Though it is not impossible to find a job in a bad economy, it becomes more difficult to find a good quality higher paying position, especially for younger recruits. Additionally, quality of life on average is affected by a recession, and can contribute to factors such as worthlessness for some individuals unable to find jobs. Generally, management and senior level roles tend to be safer positions during a recession and this is especially true in Japan where corporations tend to retain their employees for significantly longer than many other countries. According to the Tokyo Foundation and their article: The Unchanging Face of Japanese Employment, “we can see that the 10-year retention rate [of employees at one company] is much higher in Japan than the United States across the board, an indication of the value the Japanese place on long-term employment.” This long term employment strategy used by Japanese companies allows many of these “life” employees to ride out economic downturns somewhat unscathed, though the economic health of the corporations they work for may suffer. Japan’s culture of seniority also translates to better job security for older members of the workforce.

Due to the nature of employment in Japan, and the traditional lengthy careers at single companies, middle managers and senior level employees tend to be able to ride out poor economic slumps, far more easily than junior employees.The maintained nature of seniority in the workforce, further allows more senior employees a comfortable position during recession years. Japan also experiences high employment shortage rates in many industries which allows the effects of unemployment to be less substantial. Regardless, when the economy is shocked unemployment as a whole generally rises and GDP falls significantly, especially as demonstrated during the 2008 financial crisis, and during the 2011 tsunami crisis. There are occasions, with natural disasters such as the 2011 tsunami for example, that do not see unemployment rise across the board, these events require huge rebuilds that bring further employment into hurt areas.


Key Takeaways:

  • Economy and hiring work in cycles of expansion and retraction
  • As the stock market rises, unemployment falls, and the Consumer Price Index rises
  • Japan was significantly affected by the 2008 recession, GDP took the most significant hit out of all Large OECD nations
  • The 2011 tsunami is the most expensive natural disaster to ever take place, and caused an economic downturn in 2011, yet did not add to unemployment
  • Junior roles and recently hired individuals stand to lose the most during a recession
  • Japan’s history of hiring for life has contributed to senior and mid level job security during economic downturns

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