Academic journal article Monthly Labor Review

Utilization of Labor Resources in Japan and the United States: On the Basis of U.S. Definitions, Japan's Unemployment Rate Surpassed the U.S. Rate for the First Time in 2000; Expanded Measures Show a Much Greater Gap between the Two Countries' Underutilization Rates. (Labor Resources in Japan and the U.S.).(Statistical Data Included)

Academic journal article Monthly Labor Review

Utilization of Labor Resources in Japan and the United States: On the Basis of U.S. Definitions, Japan's Unemployment Rate Surpassed the U.S. Rate for the First Time in 2000; Expanded Measures Show a Much Greater Gap between the Two Countries' Underutilization Rates. (Labor Resources in Japan and the U.S.).(Statistical Data Included)

Article excerpt

Studies comparing unemployment rates in the United States and Japan on the basis of pre-1994 U.S. definitions and concepts of unemployment have engendered considerable debate concerning procedures for adjusting the rates for comparability across national boundaries. The debate can be boiled down into the following two points: (1) Japan's official unemployment rate was being understated because the Japanese definition of unemployment was quite different from those of other developed countries. (2) Japan's expanded unemployment rate, in which the scope of unemployment was enlarged to include other forms of labor underutilization, was relatively high among developed countries, compared with its low official unemployment rates.

In opposition to the first argument, many labor economists asserted that Japan's official unemployment rate was changed only slightly by adjustments based on U.S. definitions and concepts and that the rate was well below the U.S. official unemployment rate even after the adjustment. These same economists agreed, however, with the second argument and recognized that Japan's labor market was not as efficient as the official unemployment rate indicated. The reason for this gap, they maintained, was the existence of a relatively large degree of slack in the labor pool, consisting of workers who were pushed into hidden unemployment during recessions (for example, discouraged workers).

During the decade of the 1990s, economic conditions in both the United States and Japan changed dramatically. At the beginning of 2001, the U.S. economy had experienced a long-term expansion that began in March 1991, (1) and the official unemployment rate had fallen during that period, to just over 4 percent. By contrast, Japan's economy has experienced an extended downturn since 1991, when the asset bubble burst, (2) and although it underwent a small cyclical upturn from 1994 to 1997, it again turned downward from 1997 to 1999. (3) It is often said that this long-term recession was caused by the fall of real-estate and stock prices and a reduction in lending by financial institutions.

Japan's official unemployment rate has soared during the same period. At the beginning of 2001, it was approaching 5 percent, a figure higher than the official U.S. unemployment rate at the time.

Reflecting the long-term downturn of Japan's economy, "restructuring" within Japanese industries has brought higher unemployment, especially among white-collar workers. (4) Some Japanese economists argue that the country's well-known "long-term employment system" (5) can no longer be sustained and that job security went by the wayside during the past decade.

Still, no rigorous comparison has been made of unemployment rates in these countries on the basis of the 1994 revisions to U.S. definitions and concepts. It may be that changes in the U.S. definition of unemployment will have a large impact on the comparison. Furthermore, the U.S. definitions of the expanded measures of unemployment, U-1 through U-6, were changed in 1995, and no comparisons have been made on the basis of these new concepts. The analysis presented in this article builds upon earlier work by Constance Sorrentino published in the Review; a synopsis of Sorrentino's findings for the pre-1994 period is given in the appendix.

In this article, data used in both countries are described, and a brief outline of the revisions to the U.S. Current Population Survey (CPS) is given. Next, Japan's unemployment rates (including expanded ones) are adjusted to conform with current U.S. definitions and concepts, and the U.S. and Japanese rates are compared. Finally, the underutilization of Japan's labor resources and its implications on the structure of the labor market are examined.

Data resources and CPS revisions

Official unemployment rate. In the United States, the official unemployment rate is reported every month by the Bureau of Labor Statistics, based on data collected in the CPS. …

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