A couple of weeks in the past I wrote this weblog publish – Japan – the challenges going through the brand new LDP chief – Half 2 (October 9, 2025) – documenting the viability of a fiscal growth in Japan given the supply of idle labour sources, that are in brief provide. I famous that the latest estimates from the Financial institution of Japan of the Labour Enter hole had been +0.47 per cent, which suggests the out there labour power is working over their development potential, and lift the query: How can output development be doable with the labour capability already nicely above potential? Which is what right this moment’s dialogue is about.
I observe the common remark that follows any dialogue I present about financial development that I should be mad provided that the world is working at 1.7 occasions the regenerative capability of the biosphere.
I do know that and I’ve made the purpose usually.
So that you don’t must hold making it as I’m oblivious to the difficulty.
However with inhabitants development, it’s troublesome to see financial development as measured by GDP turning into zero.
Degrowth will not be about zero financial development.
It’s about decreasing the vitality content material of that development and bringing our useful resource use again into the vary of regenerative capability.
The query posed within the introduction bears considerably on the difficulty of productiveness development – that’s, development in output per unit of enter.
If labour sources are scarce then to squeeze extra output from the out there labour requires both they work longer and/or they work smarter.
Hours labored
There’s a notion that Japanese employees work lengthy hours and so making an attempt to get extra out of the present workforce by extending working hours wouldn’t be doable.
There are some misconceptions right here.
First, traditionally, Japanese employees did work lengthy hours.
In 1980, for instance, the typical annual hours labored per employed employee was 2,121 hours (round 42 hours per week).
The OECD common in 1980 was 1,919 hours.
Different nations: Australia 1,818; US 1,859; Germany 1,746; and the UK 1,619.
However that has modified considerably within the face of adjusting social norms and authorities insurance policies encouraging decrease authorized hours of labor.
So in 2024, the numbers had been: OECD common 1,740; Japan 1,611; Australia 1,645; US 1,811 (2023 knowledge); Germany 1,342 (2021 knowledge); and the UK 1,496.
Second, Article 32 of the Japanese – Labor Requirements Act 1947 (final revised 2018) – is evident:
(1)An employer should not have employees work greater than 40 hours per week, excluding break intervals.
(2)An employer should not have employees work greater than 8 hours per day for every day of the week, excluding break intervals.
However the injury is finished by way of Article 36 (Off-Hours Work and Work on Days Off), which covers time beyond regulation.
Basically, if the unions and the employer agree then it’s open sesame.
Worse, is that if the worker agrees (below stress in fact) to what’s referred to as the ‘fastened time beyond regulation system’ – みなし残業 (Minashi Zangyo) or 固定残業 (Zangyo) then they are often required to work a set variety of hours time beyond regulation with out pay.
Third, the official knowledge is a bit of deceptive as a result of it measures the ‘formal’ working preparations quite than what truly occurs.
In some sectors, there’s casual stress to work unpaid time beyond regulation hours as a part of the loyalty to the corporate.
Additional, there are social conventions that make it arduous to get out of the ‘after work’ drinks, which might proceed late within the night time.
Nevertheless, that casual follow is declining considerably because the youthful employees undertake totally different attitudes to the office than their dad and mom.
There may be additionally an rising quantity (and proportion) of 派遣社員 (dispatch employees) and 契約社員 (contract employees) in Japan which blurs the image – given those that are working full-time are in decline.
As social attitudes change and extra ladies enter the labour power, they swell into these extra informal positions.
My conclusion: there’s most likely scope to extend hours of labor however it will doubtless be on the expense of the casualised employees who’re already underpaid and insecure, which might additional scale back the standard of labor.
To not be really helpful.
The Productiveness situation
I usually assume again to the work of – W. Arthur Lewis – who was a West Indian financial improvement theorist, who revealed a seminal ebook on the subject in 1955 (The Concept of Financial Development).
That was a typical textual content once I did improvement research within the late Nineteen Seventies on the College of Melbourne.
It got here after a well-known journal article – Financial Growth with Limitless Provides of Labour (revealed 1954) – which unveiled his dual-sector mannequin of improvement.
Accordingly, a nation grows by increasing the ‘capitalist’ sector utilizing labour sources within the ‘subsistence’ sector, the latter which he thought of to be ‘backward’.
The subsistence sector has excessive charges of slack – extra employees working than strictly essential to do the work, which suggests the productiveness in that sector measured by standard requirements may be very low.
Thus, nationwide productiveness will increase total as labour is interested in the rising, extra capital-intensive sector.
The seemingly ‘limitless labour provide’ out there within the subsistence sector permits the upper productiveness sector to develop with out putting upward stress on wages.
Income are thus excessive and charges of reinvestment in productive capital are excessive, which spawns elevated employment alternatives to permit the migration from the subsistence to the excessive productiveness sector to proceed.
Finally, because the subsistence sector is diminished to its naked bones, wage pressures enter the image – however by then the financial system has traversed from undeveloped to developed.
W. Arthur Lewis was an optimist and didn’t contemplate the primary world capitalists would take their income and never reinvest again within the prosperity of the nation.
Historical past tells us in any other case.
The purpose of the reference although is that to some extent Japan is a twin financial system – not less than that’s what many economists assume.
I see rather more nuance however the mainstream see a high-tech, excessive productiveness items producing sector dominated by manufacturing and a low-productivity service sector the place there are numerous employees on payrolls who do little or no productive work.
If that encapsulation was correct then Japan may faucet into the labour sources within the service sector who allegedly are underworked and encourage their shift into the excessive productiveness sector.
Do not forget that overlaying all this can be a quite quickly rising dependency ratio – which implies that there are few Japanese employees truly producing items and companies relative to those that are utilizing them (the aged) and that downside is getting worse because the years cross.
So to keep up materials dwelling requirements, the subsequent technology of employees should produce extra per head than their predecessors.
That’s the problem of accelerating dependency ratios regardless of the mainstream economists telling us that the issue is that governments will run out of cash paying for the pensions and well being care.
The traditional narrative is that 70 per cent of employees in Japan are employed within the Service sector but its productiveness may be very low.
The favored declare is that you simply enter a store and get besieged by one employee after one other who says hi there, goodbye or good day or another factor however who seemingly does nothing a lot.
Guests usually scoff on the males with little wands that stand outdoors procuring centre automotive parks or public buildings directing visitors.
At Kyoto College there are stacks of those ‘visitors males’.
Guests declare they do nothing very helpful in any respect and simply look necessary of their army (police) model uniforms waving their wands.
Certainly they may do extra productive work elsewhere is the query?
Issues will not be all the time what they appear to be particularly when cultural blinkers are in place.
These males work together with the general public and convey an ideal sense of group.
They go house after work every day to maintain their households and have pleasure in what they do.
One among these employees all the time smiles when he sees me arrive on my bike and waves me by means of with a welcome and じゃね (ja ne) which is an off-the-cuff option to say “see ya later mate”, and signifies he is aware of me by now.
I smile, he smiles and we’re each happier for the expertise.
So on what universe are they doing ‘nothing’?
However the mainstream competition is that Japan may clear up a few of its labour shortages by redistributing its labour sources from the service sector the place they’re allegedly underemployed and retraining them to work within the goods-producing sectors.
Productiveness would rise and there would thus be extra room for actual wages development, which has been largely absent over the past 20 or so years.
There may be reality within the competition however it does ignore the cultural points I referred to above.
It’s true that the service sector has productiveness ranges (and development) nicely beneath the manufacturing sector, however that discovering will not be distinctive to Japan.
Manufacturing productiveness is taken into account excessive though development in recent times has been low.
After we consider alternatives for productiveness development we will see two avenues:
1. Inside-firm – enhance practices inside a given office – greater abilities, improved gear, and so forth.
2. Reallocation – decreasing low-productivity corporations/sectors and selling high-productivity corporations/sectors.
One must be cautious what one needs for although.
For example that I got here throughout final 12 months in Kyoto is the tatami mat trade.
Many native areas have little factories like this picture depicts (I took it simply across the nook from the place I reside).
Small-scale manufacturing operations are scattered by means of residential areas in Kyoto.
This specific store makes conventional tatami mats and serves a comparatively small space.
They’re intricately made and final a very long time and preserve the craft by means of generations.
Nevertheless, there’s a main shift to large-scale manufacturing, significantly made in China mats.
The trendy tatami mats are actually substituting rice straw because the filling with polystyrene.
And the imported mass-produced Chinese language mats are inferior to the mats produced in these small-scale vegetation in Kyoto – they don’t seem to be as sturdy and rapidly break up.
So whereas the ‘productiveness’ of tatami mat manufacturing is rising because the native little operations disappear, the standard falls and all of the associated human expertise and satisfaction are misplaced.
There are additionally dramatic variations in productiveness development inside sub-divisions of the service sector.
The next graph exhibits two sections of the Retail Sector – normal merchandise which has greater than doubled its productiveness since January 2000 (as much as December 2024) and the dry items and clothes (department shops and so forth) which has gone from 100 to 35.3 index factors over the identical interval.
The darkish traces are 13-month shifting averages on month-to-month knowledge (Supply) to clean out the month-to-month fluctuations that are proven as nicely.
Retail commerce (Meals and Drinks) since January 2010 have gone from 100 to 102.8 factors – that’s, static.
Within the Wholesale commerce space there are dramatic variations.
For instance since January 2000 (index = 100), Wholesale commerce (meals & drinks) has gone to 212.7 factors, Wholesale commerce (Textile and attire) 100 to 35.5 factors; and Wholesale commerce (equipment & gear) 100 to 80.2 factors.
For Manufacturing, since 1990, productiveness has grown by 39 per cent.
However since 2010, it has grown by simply 2.2 per cent, an enormous slowdown.
I’ll write extra about this in additional weblog posts.
Conclusion
The conclusion from right this moment is that there’s most likely scope for presidency to encourage capital funding within the goods-producing sector which has hit a flat spot when it comes to productiveness development.
Nevertheless, it’s also going through labour shortages.
How a lot scope there’s for reallocation from the service sector to the products producing sector, with out damaging what is sweet in regards to the place is questionable and I’m investigating it additional.
That’s sufficient for right this moment!
(c) Copyright 2025 William Mitchell. All Rights Reserved.