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Japan – Firms near crisis point as labour shortage worsens

11 July 2014

Japan's labour shortage is nearing a crisis point in some key industries as it spreads from construction to services, reports Reuters. The crisis is curbing companies' operations, pushing up wages, and potentially crimping a tentative recovery in the world's third-largest economy.

Airlines, retailers, truckers and restaurant chains are being forced to rethink expansion plans and, in extreme cases, shut up shop because they cannot fill jobs at any wage.

Jolted out of two decades of deflation by Prime Minister Shinzo Abe's reforms, many Japanese companies are struggling to secure workers due to minimal immigration, inflexible hiring laws, and a working age population that is expected to shrink by 13 million people by 2030.

The problems facing companies in their bricks-and-mortar expansion come just as doubts arise about the prospect for business investment to drive the recovery. Machinery orders, a key gauge of plans for manufacturers' capital spending suffered a record plunge in May prompting the government to say the trend of rising orders was stalling.

Yasuo Yamamoto, senior economist at Mizuho Research Institute, commented: "There's a high risk of labour shortages causing a growth bottleneck, particularly if the labour market remains rigid. More efforts are needed to enhance liquidity in the labour market to shift more workers to growth sectors while increasing the number of workers, including immigrants."

Japan's deepening labour shortage has led it into uncharted territory among its developed nation peers, but is little surprise given its rapidly aging and shrinking population. It has done itself few favours by so far resisting calls to open its doors wider to long-term immigration or dismantle strict employment laws.

A proposal floated among Mr Abe's advisers to increase the number of immigrants was recently rejected. Instead, in his June growth strategy, Mr Abe expanded a foreign trainee scheme which accounts for less than 0.3% of Japanese workers. He is also encouraging greater workforce participation by women and the elderly, but critics say these measures will never be enough.

Japanese employers were offering 109 jobs for every 100 job seekers in May, the 18th consecutive rise in the ratio.