Employment Changes Brought On by theNovel Coronavirus Pandemic(Economy and Society Study Group Commentary No. 9)

Kawakami Atsushi
Associate Professor
Department of Economics, Toyo University

1. Changes in the Total Unemployment Rate due to the Declaration of theState of Emergency
The Novel Coronavirus pandemic that has spread since 2020 and the measures taken to prevent it
have not only changed our lifestyles but also have had a significant impact on economic activities
and the employment environment. This article will discuss the challenges to employment during thepandemic by presenting macro-level labor statistics to provide an overview of the changes inemployment indicators during this period.
Figure 1 summarizes the change in the total unemployment rate with 2019 as the baseline.
This figure shows that the impact of the pandemic on unemployment had not yet been observed fromthe end of January 2020 to February 2020, the period of the coronavirus outbreak case on the Diamond
Princess cruise ship,1 which triggered the strong awareness of the Novel Coronavirus in Japan. The
unemployment rate started to rise from April 2020, which was when the first declaration of a State ofEmergency was issued. This fact can be interpreted to mean that the reduction in economic activity
due to the state of emergency declared by the government had a direct impact on employment. After
that, deterioration of the employment environment continued through 2020, and although there wasa decline in the total unemployment rate when the pandemic situation improved in the beginning of
2021, it rose again during the second and third emergency declarations (January and April 2021).
These facts suggest that the contraction in economic activity due to declaration of the state ofemergency became a barrier to the issuance of the declaration, and that the government was facedwith a trade-off between preventing infection and maintaining the economy and employment.
On the other hand, if we compare the worsening of the total unemployment rate in thepandemic with other economic crises, we can see that the impact was limited. Figure 2 shows thechange in the total unemployment rate, which is the result of Figure 1 aggregated back to 2006.
During the financial crisis in 2008 and 2009, there was an increase in the total unemployment rate,
and the magnitude of the impact of the crisis was shown to be greater than that of the pandemic. Notethat this figure is based on the year-on-year difference (difference from the same month the previous
See the National Institute of Infectious Diseases website (https://www.niid.go.jp/niid/ja/typhi-m/iasr-reference/2523related-articles/related-articles-485/9755-485r02. html).
11year). The figure shows that the level of the total unemployment rate averaged 2.9% per year in 2020
and 5.6% in 2009, the year of the financial crisis.

2. Employment Adjustment in the Pandemic
We would like to confirm how the rising unemployment since 2020 has occurred by looking at thechanges in the reasons for leaving previous jobs. Figure 3 shows the year-on-year difference in thenumber of unemployed people2 who left their jobs within a year3 (difference between 2021 and2019), by breakdown of the reasons for leaving their previous jobs, using the “Labour Force Survey(Detailed Tabulation).”Although the increase in overall unemployment does not differ from that of the total
unemployment rate shown in Figure 1, we can see that a large number of job separations were causedby corporate factors. In April 2020 when the first state of emergency was declared, there was large
number of unemployment due to “company bankruptcy and business closure,” a trend that had an
impact until the April-June 2021 period in comparison with 2019. In addition, a high percentage of
those who lost their jobs due to “layoff or recommended early retirement” or due to “business slump
or uncertainty” remained unemployed until the July-September 2021 period, suggesting that thepandemic caused job cuts and prolonged unemployment.
On the other hand, the number of individuals who became unemployed due to “retirement
or expiration of employment contract” increased from the July-September 2021 period, which was
not observed in the April-June 2021 period when the first state of emergency was declared. This
circumstance indicates that even after the declaration of the state of emergency was lifted, companies
were forced to downsize their businesses, which led to job separation for employees with fixed-term
employment contracts. The impact of this trend continued to be seen, with a high percentage of theunemployed remaining after the April-June 2021 period.
From Figure 1, it is also noteworthy that although the overall number of unemployed persons
decreased in the July-September 2021 period, the reason for this decrease was a decline inunemployment due to “looking for a job with better conditions.” This tendency could be interpreted
as an improvement in conditions at the place of employment, but it could also be seen as an increasein the risk of leaving the workforce, as people are unable to secure better job opportunities afterleaving. At the same time, unemployment due to other corporate performance factors has notdecreased, and the employment environment cannot be said to have improved during this period.
We have already discussed unemployment due to employment adjustment by companies.
However, employment adjustment is not necessarily limited to reducing the number of employees byencouraging them to resign or by the expiration of employment contracts; it may also include

It should be noted that since the data cover unemployment within a one-year period, the aggregate figures particularlyfor 2020 include those in long-term unemployment of those who lost their jobs in 2019.
3For the fully unemployed, the job-seeking period is the survey period in the “Labour Force Survey” (the last week ofthe month), while for the unemployed, the period is extended to one month including the survey period.
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reduction of personnel costs by cutting working hours and salaries. In order to confirm this point,
Figure 4-1 shows the percentage of companies conducting employment adjustment in all industries
based on data from the Survey on Labour Economy Trend conducted by the Ministry of Health,Labour and Welfare, and Figure 4-2 shows the rate in the lodging industry and the food and beverage
service industry, which are thought to have been particularly affected by the pandemic.
The percentage of companies conducting employment adjustment in general was high from
April to September 2020 but has been on a declining trend since then. The level in the most recent
July-September 2021 period is lower than the same period in 2019 (Figure 4-1). On the other hand,in the lodging industry and the food and beverage service industry, employment adjustment has been
carried out since the January-March 2020 period, before the first declaration of the state of emergency,
and has remained at a level higher than that of the same period of 2019 since 2021 (Figure 4-2).
Looking at the adjustment method for personnel reduction related to the increase in unemployment
we see that “solicitation of voluntary retirement or dismissal” has not increased after the outbreak of
the pandemic. However, the reduction of so-called non-regular employment such as “reduction oftemporary workers” and “suspension of re-signing or dismissal of temporary and part-time workers”
has increased. In addition, although it is not a reduction in employment, adjustment through“temporary leave” has been implemented at a high level since the beginning of 2021. This is thought
to be due in part to the fact that employment adjustment subsidies cover a portion of the absence
allowance for maintaining employment through a temporary leave. The reduction in employment ismanifested both as a reduction in the number of employees leaving the labor force and as a reductionin the number of new employees entering the labor force. The “restraint or suspension of new graduatehires” and “reduction or suspension of mid-career hires” have been implemented continuously since2021, and these adjustments are thought to have an impact on the prolongation of unemployment.
Employment adjustment is also conducted by reducing working hours while maintaining
employment. It can be shown that employment adjustment through “substitution of holidays, increaseof holidays and vacations such as summer vacation” and “regulation of overtime work” continued
while the effects of the first emergency declaration in 2020 remained, but it is also noteworthy thatthe official working hours were reduced, especially in the lodging and food and beverage service
industries.
Figure 5 shows the change in total actual working hours (the sum of official working hours
and overtime working hours) compiled from the Monthly Labour Survey by industry. This aggregate
shows that working hours in the lodging and food and beverage service industries were significantly
reduced after the first declaration of the state of emergency, and that the accommodation industry inparticular has maintained a low level since the declaration was lifted in 2020.

3. Mismatch Situation
As we saw in the previous section, the number of unemployed people is shown to have increased
through job separation. However, at the same time, it is also possible that the unemployed remain3unemployed because they are unable to find the job they want. There are two possible reasons for
this: one is that there is a surplus of job seekers, meaning that there are not enough job openings forthe number of job seekers, and the other is that there is a mismatch between job seekers and job
openings in terms of the compensation. The UV curve4 in Japan is summarized in Figure 6-1 toillustrate the situation.
The UV curve is plotted using monthly data, with the unemployment rate measured for theunemployed on the vertical axis and the vacancy rate on the horizontal axis, which indicates asituation in which an employee is not available for a job opening. The unemployment rate observed
when the numbers of job seekers and job openings match (U=V), which is the period plotted on the(45-degree line diagram in the figure) is considered to be the unemployment rate caused by amismatch. An unemployment mismatch can also be seen as a shift of the downward sloping curve tothe right between U and V.
The period plotted to the upper left of the line indicating U=V is the period in which thenumber of job seekers is greater than the number of job openings, and a labor surplus occurs. Looking
at the period of time plotted, it can be said that a serious labor surplus occurred in the early 2000s
when the IT or dot-com bubble was in the process of bursting and also during the financial crisis.
Since 2010, the employment environment has been improving, and there has been a shift from ashortage of jobs to a labor shortage.
Figure 6-2, which summarizes the UV curve since 2015, shows a labor shortage, which had
been ongoing before the pandemic, changed rapidly in 2020 as the supply and demand became tighter.
In May 2020 after the first state of emergency was declared, the labor shortage situation was resolved,and the unemployment rate and the vacancy rate were in line. Thereafter, in December 2020 and May
2021, labor supply and demand were also in line, but compared to May 2020, due to mismatch theunemployment rate rose in December 2020 and May 2021, indicating that the mismatch gradually
expanded in the wake of the pandemic. However, unemployment due to the mismatch is smaller
during the pandemic than that in 2015, when the labor supply and demand matched.

The calculation method used for the vacancy rate and the unemployment rate is that used in the Japan Institute forLabour Policy and Training’s Youth Labour Statistics 2020. The vacancy rate = (number of active job openings - numberof job openings / employment) / (number of active job openings –number of jobs + number of employed persons), andthe unemployment rate = number of completely unemployed persons / (number of employed persons + number ofcompletely unemployed persons).
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Source: Labor Statistics Survey, Ministry of Internal Affairs and Communications.
Note: Seasonally-adjusted figures are used for the difference between the same month of theprevious year.

Source: Labor Statistics Survey, Ministry of Internal Affairs and Communications.
Note: Seasonally adjusted figures. Year-on-year difference in 2021 compares to 2019.

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Source: Ministry of Internal Affairs and Communications, “Labour Force Survey (Detailed Tabulation).
Note: 2021 year-on-year differences are used for 2019 year-to-year differences.

Source: Ministry of Health, Labour and Welfare, “Survey on Labour Economy Trend.”

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Source: Ministry of Health, Labour and Welfare, “Survey on Labour Economy Trend.”

Source: Monthly Labour Statistics, Ministry of Health, Labour and Welfare.

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Source: Ministry of Health, Labour and Welfare, “General Employment Placement Situation”; Ministry of Internal
Affairs and Communications, “Labour Force Survey.”
Note: The calculation method for the vacancy rate and the total unemployment rate is the same as that used by theJapan Institute for Labour Policy and Training, “Youth Labour Statistics 2020.” Vacancy rate = (number of active
job openings - number of job openings) / (number of active job openings - number of job openings + number ofemployed persons); unemployment rate = number of totally unemployed / (number of employed persons + numberof totally unemployed persons). The values used in the tabulation are seasonally adjusted.

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Source: Ministry of Health, Labour and Welfare, “General Employment Placement Situation”; Ministry of Internal
Affairs and Communications, “Labour Force Survey.”
Note: The calculation method for the vacancy rate and the total unemployment rate is the same as that used by the Japan
Institute for Labour Policy and Training, “Youth Labour Statistics 2020.” Vacancy rate = (number of active job openings- number of job openings) / (number of active job openings - number of job openings + number of employed persons);
unemployment rate = number of totally unemployed / (number of employed persons + number of totally unemployedpersons). The values used in the tabulation are seasonally adjusted.

This is an English translation of the article posted on the NPI website on January 24, 2022.

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