Monday 22 February 2016

Permanent Miracle: Japanese Unemployment Statistics and their Implications.

Does Japan have lower rates of unemployment than western (industrialized) societies?  If so, do we understand why?  Many sources (as shown in the pages that follow) claim that Japan does not have a fundamental advantage in this area, but should instead be regarded as having misleading statistics; some sources dismiss the whole question by vaguely suggesting that cultural factors account for the difference, and others simply avoid mentioning it at all.  This paper addresses the epistemological problem of recognizing Japan's advantage in sustaining low unemployment, even during times of economic crisis: my proposition is that it has become politically inconvenient to admit that Japan does, indeed, have a profound advantage over western economies in this area, and the difficulty in admitting it has resulted in a difficulty in researching it.

The following quotation from Itoh Makoto is the point-of-departure for our inquiry:
Although Japanese unemployment also increased from 1.3 per cent (0.7 million) in 1973 to 1.9 per cent (1.0 million) in 1975, it was still quite low in comparison with other advanced countries.  There are at least three reasons for this.  First, Japanese firms maintained their lifetime employment policy […]. Second, the official definition of unemployment is very narrow in Japan, and for the figure to be comparable with other advanced capitalist countries it should be at least doubled. (Itoh, 2000, p. 11)
We should pay attention to the way in which Japan's low unemployment is introduced here, and what motivates the author's statistical claim: it appears as a sort of concession (an inconvenient fact), as Itoh is in the process of describing the economic situation in the 1970s as a terrible crisis.  The numbers contradict this characterization: unemployment barely rose to 2% in the 1970s, (Blumenthal, 1987, p. 70) but Itoh is proceeding to dismiss the significance of this statistic, rather than re-evaluate his claim.  In the latter half of the quotation, the suggestion that the Japanese statistic is phony allows it to be disregarded, both in construing a particular period of time to be a crisis, and in evaluating the Japanese "economic miracle" as a whole.  The statistical claim that Japan's unemployment figures are wildly inaccurate (and could at least be doubled, etc.) will be directly refuted in §2, below; however, the ideological function of the claim is more important than the claim itself.

The refusal to accept the implications of Japan's (low) unemployment rate is not always a result of the narrow, statistical skepticism described in §2.  Note the general statement of the problem (i.e., the reason for regarding the statistic as dubious) in Taira's 1983 article,"Japan's Low Unemployment: economic miracle or statistical artifact?":
If [emphasis added] official statistics on employment and unemployment are any guide to the degree of labor market efficiency, the performance of the Japanese labor market is almost miraculous. […] But if the rate of unemployment indicates the degree to which an economy's labor force is underutilized, anyone who remembers the poor state of labor force underutilization during the 1950's [sic] would consider today's similar unemployment rate alarming. The mystery of Japan's unemployment statistics is that they do not seem to reflect this alarming situation. (Taira, 1983, p. 3)
Epistemologically, what Taira has done here seems plausible, but is profoundly misleading: if we can (subjectively) remember the 1950s (or the 1970s, or any other period) as a time of economic hardship, and yet the unemployment statistic was miraculously low, we may therefore disregard the rate of unemployment (as somehow phony, as failing to reflect the "alarming situation" that we are supposed to already firmly know exists, from our memory of the period).  What Taira explains explicitly will be an implicit attitude for many others (in their reflections on political and economic history): if someone's own memory of the 1950s or the 1970s is dominated by labor-union activism, economic uncertainty, political struggle of various kinds, etc., then the fact that the unemployment rate was merely 2% (at worst!) during that "crisis" becomes politically inconvenient.  Apart from the details of Taira's argument (or any particular argument), we have to recognize the nature of his (stated) motivation to thus disregard the low rates of unemployment (i.e., it is an epistemological problem).

Similarly, e.g., Kurokawa (1989) offers a dismissal of the (shockingly low) unemployment rate in the 1970s with the vague claim (lacking any citation) that the Japanese statistic "excludes from its category of 'unemployed' a number of groups who would be treated as unemployed in U.S. or European statistics". (Kurokawa, 1989, p. 147)  I have seen remarks of this kind (used to dismiss or diminish the significance of Japan's unemployment rate) throughout my life (in newspapers, etc.), and, as is proven in §2, below, these claims are factually wrong (although they are meant sincerely, as so many sources make similar claims).  However, on a deeper level, this idea seems to structure our approach to Japanese economics.  Either low rates of unemployment (even during a crisis) are a distinctive feature of the Japanese economy, or else they are not.  If they are, then this has implications both for the critique of Japanese and Western policy: Taira's ultimate conclusion is to suggest that (contrary to the official statistics) Japan really had unemployment around "10 percent or so" in the late 1970s, "roughly comparable to Western Europe". (Taira, 1983, p. 9)  This would completely transform our understanding of the 1970s (if it were true), and, likewise, it would completely transform our understanding of the post-2008 crisis (if we really believed that Japan had endured that recent crisis with levels of unemployment "roughly comparable to Western Europe").  So, the claim has both a clear ideological purpose, and powerful political implications.

In a book-length treatment of job-insecurity in Japan (i.e., a work that is inclined --if not biased-- to treat unemployment as excessively high, even if it is objectively low relative to Europe) the author makes the following clarification:
…any concern that the statistics may have been fiddled with because Japan's unemployment rate is so much lower than those of other countries is utterly unfounded.  Without going into a detailed explanation here, there are no special problems with Japan's unemployment statistics compared to other countries.  (Yūji, 2005, p. 20)
The reason for the author making this clarification seems to be the same attitudes I've quoted from various sources in §1, above:
Twenty years ago when the Japanese unemployment rate was conspicuously lower than those of other industrialized countries, some wondered whether there were statistical problems with Japan's unemployment rate because it seemed much too low. (Ibidem)
Yūji's work on job-insecurity represents a significantly different mode of critique from most of the other sources discussed in this paper: it engages with the fact that unemployment is a problem, while admitting that the scale of the problem is indicated by the official statistics, and that scale is (therefore) surprisingly small.  Obviously, for someone engaged in a critique of government policy (in relation to employment, education, income-gaps, etc., as Yūji is) there must be a significant temptation to simply join the bandwagon of voices who dismiss the (low) unemployment figures as somehow flawed or misleading.  So, in this case, the unemployment statistic is politically inconvenient, but the author deals with it (rather than denying or evading it).

Although the misconceptions about how Japan calculates its unemployment statistics are refuted (in a sense) in the annual reports from the government statistics bureau (i.e., if one carefully reads the methodology), the most important refutation was published by the U.S. Bureau of Labor Statistics in their publication, The Monthly Labor Review, in 1984.  This report was authored in reply to the article from Taira, 1983 (i.e., the same paper quoted in §1).  Intentionally or unintentionally, Taira overstated the significance of data from the month of March, when large numbers of recent school-graduates (on the Japanese schedule) are very-briefly unemployed; Taira uses this statistical "anomaly" to give credence to the idea that Japanese figures could be "nearly double the official unemployment rate". (Sorrentino, 1984, p. 18 & 20–21)  This is precisely the same notion quoted from Itoh in §1.  Working through the numbers in detail, Sorrentino refutes Taira's claim that the Japanese unemployment rate would be dramatically higher if the same methodology used by the U.S. government were applied to Japan: the difference between the stats generated by the two methodologies was only one tenth of a percentage-point in 1980, with the largest possible (observed) difference between the rates being 0.4% in 1978. (Ibid., p. 24)  We may add to this Yūji's observation that (in recent decades) international agencies have brought methods of statistical measurement into greater and greater harmony, i.e., even further diminishing the possible differences generated by the two. (Yūji, 2005, p. 20)

This is a "discovery" of fundamental importance, and many people (including professors) have been shocked when I explained it to them (as the notion that Japan's unemployment stats are understated is so widespread).  However, in terms of Occam's Razor, it would be much more difficult to look at Japan's historical unemployment statistics (in the 1970s, or in the post-2008 period) and to try to convince oneself that they are, as Taira claimed, "roughly comparable to Western Europe". (Taira, 1983, p. 9)  On the contrary, in every period I have seen (definitely including the Great Depression of the 1930s), Japan's unemployment performance is profoundly different from that of Western Europe, the United States, or Canada.  I mention Occam's Razor to indicate that it would not be enough for us to merely doubt the accuracy of the measurement, as Taira invites us to do: we would need a much more complex explanation, introducing many new assumptions, to bring the Japanese unemployment rate (in its vectors as well as its normal levels) into a situation comparable to Western Europe.  By contrast, in rejecting Taira's thesis we have a very simple (if challenging) set of assumptions: Japan really does have a lower level of unemployment, and now we must deal with the implications.

What the U.S. Bureau of Labor statistics does next (in its report) is also worth considering: having admitted that Japanese rates of unemployment are dramatically lower (even during an economic crisis) the inevitable question becomes, why?  Japan's lower rate of unemployment reflects "fundamental differences between the Japanese economic system and culture and those of the industrialized western nations". (Sorrentino, 1984, p. 25)  What are those differences?  Are we confident that we can verify what the factors are (empirically), or how significant they are (proportionately) to the problem?  Is there, to be blunt, something very fundamentally wrong with France that could be remedied by learning from Japan's policy choices?  All of these questions follow from the simple recognition that Japan has a fundamental advantage in this area, and yet (by the same token) all of these questions are avoided by refusing to face up to the significance of the unemployment rate.

Japan's low rate of unemployment (even in the midst of an economic crisis) seems to be such a challenge to our assumptions that, in many cases, analysts simply avoid any mention of it at all.  In a serious academic article comparing Japan's experience in the depression of the 1930s to the 1970s, Blumenthal does not discuss or analyze unemployment (although the rate is stated, factually, in a few sentences); not a single word pertaining to unemployment appears in the conclusions. (Blumenthal, 1987, esp. p. 80-–81)  The article offers no comment on the astounding fact that the unemployment rate in Japan remained below 7% during the depression of the 1930s, and barely reached 2% in the 1970s (see chart, below).  In an equivalent article discussing economic depressions in Europe or America, unemployment would be one of the most important indicators discussed, along with theories as to its alleviation; yet here we see it passed over as if it were hardly worth mentioning, when Japan achieved what really would be considered "an economic miracle" if any country in the western world could have achieved it.

This peculiar sort of omission (a seeming "lack of interest" in Japanese unemployment) is endemic to the literature.  In the respected journal Economica, a comparative analysis of unemployment rates observes "the remorseless rise in unemployment throughout the industrialized countries", (Bean et al., 1986, p. 1) and yet offers absolutely no comment or analysis on the fact that Japan is an astounding exception to all the rules, aside from noting --in a sentence-- that it is one such exception. (Bean et al., 1986, p. 1 & 10)  In a chapter devoted to the survey and analysis of Japanese economic theories concerning the "economic miracle" period, Tessa Morris-Suzuki does not mention unemployment even once; (Morris-Suzuki, 1989, p. 131–163) again, an equivalent overview of economic theories for any western nation (for almost any era!) would devote considerable attention to competing explanations for unemployment rates (and competing policy-options, etc.).  A book entirely devoted to the critique of "the East Asian Miracle" concept (and of related World Bank policies) fails to discuss Japan's unemployment even once. (Fishlow et al., 1989)  In a compendious work covering 1935–1965, titled Economic Ideology and Japanese Industrial Policy, unemployment is mentioned only a single time, in a single sentence, with zero analysis. (Gao, 1997, p. 218)  Given that this book includes the period of the Great Depression (and recovery thereafter), the omission of unemployment (in terms of theory or policy) is especially striking.  How is it possible that Japan's unemployment is simultaneously so remarkable and so much ignored?

In preparing materials for this paper, I sifted through the full list of every article in the library's database containing the words "Japan" and "Unemployment" published since 2008.  Although the implicit constraint to this search was the English language (i.e., works published in Japanese were excluded), I was amazed that I could not find a single article dealing with the (striking!) contrast between unemployment rates in Japan and the western world after 2008.  Meanwhile, there were numerous articles from psychology journals discussing the correlation between rates of unemployment and rates of suicide in Japan; this is an incongruous contrast, given the (apparent) lack of research-interest in the more fundamental issue.

This paper has shown that there is an enduring, widespread misconception that Japan's low rates of unemployment "don't really count", and should be disregarded. (Itoh, 2000, Taira, 1983, & Kurokawa, 1989, discussed in §1, supra.)  Although this is factually untrue (Sorrentino, 1984 & Yūji, 2005, §2, supra), the assumption nevertheless seems to be reflected in a widespread aversion to engaging with unemployment (in terms of theory or policy) in major works on the economy history of Japan. (§3, supra)  To add just one more example to the latter category, G.C. Allen wrote what may be called a standard textbook titled A Short Economic History of Modern Japan (4th ed., 1981); the detailed index to this book contains no mention of employment or unemployment (whereas it has detailed listings for different sub-headings pertaining to silk-production, rice-farming, and numerous economic concepts/theories).  I could not find any substantive discussion of unemployment in this textbook for any period of history, nor in relation to any government policy; and, again, this is a shocking contrast to what we would expect in a textbook with the same title for any other country, almost anywhere in the world.

I do not believe that the misgivings about the validity of the statistic are the cause of this widespread dismissal of the importance of Japan's low unemployment rates; rather, as we saw in both Itoh and Taira's work, the misgivings are an effect of other concerns or motivations.  Japan's low unemployment is politically inconvenient because of the questions it spurs us into asking, both about Japan's past (as shown with Taira's memory of labor problems in the 1950s) and about the whole world's future.  It is possible that a thorough examination of Japan's advantages (in sustaining low rates of unemployment) would find that many of those advantages cannot be reproduced or imitated by western countries; nevertheless, epistemologically, the refusal to really deal with the precedent set by the Japanese economy may be driven by the fear that some of the advantages may be reproducible, but have unsavory political connotations.  Unlike Saudi Arabia, Japan's advantages do not derive from natural resources, or industries uniquely linked to the landscape; so Japan's economic record has real implications for the rest of the world, and may threaten to "unsettle" some of the "settled questions" of the Neoliberal era.

As one part of this essay consisted of a survey of the literature (available in English), my primary conclusion is that we do not know what factors really comprise the Japanese advantage, nor do we know the priority (or proportional significance) of the various factors that have been proposed (without verification) in the literature so far.  A separate essay could be written on the various attempts to attribute Japan's economic advantages to its culture, but this whole line of thinking seems to evade the quantitative and qualitative questions that Japan's low-unemployment phenomenon really require us to investigate.  In my own experience, it is considered shocking and offensive to suggest that Japan's low rate of immigration could be one important factor in explaining its low unemployment; to suggest this is "shocking", although the supply-and-demand relationship of immigration to wages and unemployment has been well-known since the dawn of classical economics in the 19th century, if not the 18th century.  This is one example of a factor that must be significant to some extent, but I have no idea if it accounts for 0.5%,  5% or 50% of the phenomenon; nevertheless, this is a dramatic difference (between Japan and Europe, the U.S.A., etc.) and it is a difference that has changed over time, i.e., Japan has allowed a gradually-increasing number of immigrants during the same period of time in which normal levels of unemployment have also gradually increased.  The significance of the correlation should be tested.  Another example that is "politically inconvenient" from both a British and an American perspective is the question of Japan's current account balance in relation to unemployment; this is, again, a striking difference between Japan and U.S., U.K., etc., and it must have a significant relation to unemployment to some extent, although I repeat my caveat that I have no basis to venture a guess as to any percentile figure.  Here too, the whole line of questioning is inconvenient because Neoliberals wish to believe that the current-account deficit is a "settled question".  Likewise, clearly, the role of manufacturing in the Japanese economy is starkly different from the United States or Canada, and it may be unflattering for de-industralizing nations to reflect on the extent to which long-term unemployment as a whole can be attributed to their industrial policies.  I use these examples to make it clear that my purpose is not "cheerleading" for the unique advantages of the Japanese economy, but to indicate that there are quantifiable factors related to unemployment that deserve serious investigation, i.e., beyond merely indicating "the culture of lifetime employment" (an overly-familiar explanation).

Likewise, vague allusions to the superiority of the Japanese system of education seem to dodge the question rather than really answering it: are there measurable outcomes from the Japanese education system that are (quantifiably) different from the outcomes of the French, Canadian or Spanish education systems?  If these questions are dealt with earnestly, they may also be "politically inconvenient" in challenging assumptions of western superiority, but they may also end up debunking assumptions about Japanese superiority; there is no prima facie reason to assume that Japanese education can account for the difference between employment rates in Japan vs. Taiwan, let alone Japan vs. the western world.  These are tremendously important issues that I had hoped to find addressed in the sources consulted, but I did not find them addressed anywhere (in English).  Perhaps research in this area has been delayed, in part, by the epistemological problem I've tried to define (i.e., the difficulty of admitting the basic premise that Japan has a real advantage in unemployment).

In an era when Japan's "Quantitative Easing" program has been imitated all around the world, critical questions still need to be asked about what aspects of the Japanese economy we can and should be learning from (and which mistakes we should learn from, also).

Allen, G.C.  A Short Economic History of Modern Japan.  4th Edition.  St. Martin's Press: New York.
Bean, C. R.; P. R. G. Layard, & S. J. Nickell.  1986. "The Rise in Unemployment: A Multi-Country Study", in: Economica, New Series, Vol. 53, No. 210, Supplement: Unemployment, pp. S1-S22.  The London School of Economics and Political Science: London.
Blumenthal, Tuvia.  1987.  "Depressions in Japan: the 1930s and the 1970s", in: Japan and World Depression, Ronald Dore & Radha Sinha, eds.  MacMillan: Basingstoke, U.K.
Fishlow, Albert; Catherine Gwin, Stephan Haggard, Dani Rodrik & Robert Wade.  1994.  Miracle or Design?  The Overseas Development Council: Washington, D.C.
Gao, Bai.  1997.  Economic Ideology and Japanese Industrial Policy.  Cambridge University Press: Cambridge, U.K.
Itoh, Makoto.  2000.  The Japanese Economy Reconsidered.  Palgrave: Basingstoke: U.K.
Kurokawa, Toshio.  1989.  "Problems of the Japanese Working Class in Historical Perspective", in: Japanese Capitalism Since 1945, T. Morris-Suzuki & T. Seiyama, eds.  M.E. Sharpe: London.
Morris-Suzuki, Tessa.  1989.  A History of Japanese Economic Thought.  Routledge: London.
Sorrentino, Constance.  1984.  "Japan's Low Unemployment: an in-depth analysis", in: Monthly Labor Review, vol. 107, No. 3 (March), p. 18–27.  Bureau of Labor Statistics.  U.S. Department of Labor: Washington, D.C.
Taira, Koji.  1983.  "Japan's Low Unemployment: economic miracle or statistical artifact?", in: Monthly Labor Review, vol. 106, No. 7 (July), p. 3–10.  Bureau of Labor Statistics.  U.S. Department of Labor: Washington, D.C.