Section 2 / The COVID-19 Pandemic and the Responses of Firms: A Deteriorating Revenue Environment and Employment Adjustment

115

Section 2
The COVID-19 Pandemic and the Responses ofFirms: A Deteriorating Revenue Environment and
Employment Adjustment
KINOSHITA, Yusuke; KUO, Chiu-Wei(1) Revenue and Financial Situation of the Face-to-Face Service Industry
A “K-shaped” economic recovery, where recovery is polarized depending on
the industry of the firm, has been noted as one of the characteristics of therecent COVID-19 shock. Figure 2-2-1 shows the change in ordinary profits of
all industries, manufacturing industries, and non-manufacturing industries nationwide.
Looking at the recovery process from 2020 Q2 when the economy hit bottom, manufacturing was supported by the recovery of the world economy andordinary profits recovered to increase after 2020 Q4. Thanks to strong external
demand, ordinary profits had increased for three consecutive quarters as of themost recent 2021 Q2. Meanwhile, non-manufacturing saw a decline in the decrease rate after hitting bottom in 2020 Q2, but the decrease in ordinary profits
was continuing as of 2021 Q2, showing contrasting trends.

Part Ⅱ
Part ⅢPart Ⅳ

With the spread of COVID-19, the revenue of firms has deteriorated significantly. As a result, firms have been forced to adjust their employment considerably.
In this section, we will focus on the deterioration of firms’ revenue environment
during the COVID-19 pandemic and their employment adjustment.
First, we will look at the impact of the COVID-19 pandemic on the revenue of firms by analyzing the revenue index and financial index by industry. In
particular, we will go over the financial data of the accommodations, food andbeverage services industries to see how the revenue situation has deteriorated
significantly among firms in the face-to-face services industry. In the second
subsection, we will compare the economic shock and movements in the labormarket with those of the 2008 global financial crisis. In the third subsection, we
will discuss the characteristics of employment adjustment during the COVID-19
pandemic, and in the fourth subsection, about the Employment Adjustment Subsidy. The fifth subsection is the conclusion and outlook.

Part Ⅰ

1. Impact of the COVID-19 Pandemic on Corporate Finance

116

Chapter 2 / The Economies of Japan and Kansai: A Retrospective and Outlook
（%）
40.0

33.1

20.0

3.6

0.0

-0.7

-20.0

-60.0

Ⅰ

-11.2 -9.8

-46.6 -45.5
-48.7
Ⅱ
Ⅲ
2020

-10.6
-22.0

-27.1
-29.1
-28.4

-25.3
-40.0 -28.4 -29.6

Ⅳ

All industries
Non-Manufacturing

Figure 2-2-1

22.0

21.9

Ⅰ*

2021

Ⅱ*

Manufacturing

YoY change in ordinary profits by industry

Note: * change is relative to the same period of the pre-pandemic 2019.
Source: based on Survey of Corporate Business Statistics (Ministry of Finance)

Next, Figure 2-2-2 compares the ordinary profit to sales ratio, which shows
the profitability of firms, by industry, for the 2020 Q2 period when the economy
hit bottom. It shows that the ratios of decrease were large in the “Accommodations, eating and drinking services,” “Living-related and personal services andamusement services,” and “Transport and postal activities,” in descending order, indicating that the revenue situations have been deteriorating in the face-to（%）
30.0 25.2
20.0
10.0

10.4

0.0
-10.0

-8.3
-16.7
-28.3

-20.0

Ordinary profit to sales ratio by industry (all scales, 2020 Q2)

Source: based on Survey of Corporate Business Statistics (Ministry of Finance)

Accomodations, eating and drinking services

Transport and postal activities

Living-related and personal services andamusement services

Manufacture of petroleum and coal products

Manufacture of transportation equipment

Agriculture, forestry and ﬁsheries

Manufacture of iron and steel

Manufacture of fabricated metal products

Manufacture of textile mill products

Manufacturing

Manufacture of business oriented machinery

Manufacture of general-purpose machinery

Manufacture of information andcommunication electronics...

Manufacture of electrical machinery,equipment and supplies

Wholesale and Retail trade

Manufacture of food

Manufacture of non-ferrous metals and products

Medical, health care and welfare

Industries covered

Non-Manufacturing

Construction

Manufacture of production machinery

Miscellaneous services

Miscellaneous manufacturing industries

Production, transmission anddistribution of electricity

Manufacture of chemical and allied products

Figure 2-2-2Gas, Heat supply and water

Information and communications

Real estate and goods rental and leasing

Scientiﬁc research, professional andtechnical services

-30.0

117

Section 2 / The COVID-19 Pandemic and the Responses of Firms: A Deteriorating Revenue Environment and Employment Adjustment

Table 2-2-1

Earnings and financial trends in the accommodation industry
Unit: ％Part Ⅱ
Part Ⅲ(i) Trends in the Accommodation Industry
Table 2-2-1 summarizes the revenue of firms and the financial situation in theaccommodation industry. In terms of revenue, items such as sales and ordinary
profits have significantly decreased. Additionally, the decrease rate was somewhat smaller during the 2020 Q3 and Q4 periods, which is when the Go To
Travel program was implemented. However, the decrease rate increased in 2021
Q1 after the program was suspended and when infections spread once again(the third wave), and also in Q2, which is when the third declaration of a state of
emergency was issued.
The accommodation industry has many employees and has a higher ratioof fixed costs to sales (the fixed costs ratio) compared to the manufacturingindustry2), and many of its firms recorded losses due to significant decreases insales due to the COVID-19 pandemic. With regards to employment adjustment,
it is worth noting that labor costs decreased by double digits for five consecutive

Part Ⅰ

face service industries that have been hit hard by the decrease in flow of people
due to the declarations of a state of emergency1). Below, we will analyze in detailthe accommodation and eating and drinking services industries that have beenamong those particularly impacted among the face-to-face service industries.

Sales
Revenue

AssetsOrdinary profits

20Q1

20Q2

20Q3

20Q4

21Q1*

-25.1

-80.0

-59.0

-46.9

-61.7

21Q2*
-70.4

-1,025.6-624.0-245.9-116.4 -1,531.5-371.0Labor costs

1.9

-42.6

-38.6

-40.3

-23.2

-46.2

Fixed costs ratio**

40.6

92.7

54.3

41.0

77.1

59.5

Cash/deposits

-25.2

-2.3

6.0

15.7

-4.9

-2.5

Tangible fixed assets

-0.5

-29.7

-10.2

-15.4

-9.6

-30.6

Short-term debts

-10.8

-32.7

-2.7

-24.7

15.9

-27.8

Corporate bonds

-35.4

-27.6

-31.4

-36.0

-47.9

-34.5

26.4

-23.6

2.0

4.7

24.0

-18.0

-0.7

13.9

-12.5

-52.2

-54.8

-49.3

-39.7

-8.1

-46.0

-66.8

-110.4-120.7

Liability
Long-term debts/Net assets
Total net assets

Retained earnings

Note: *relative to the same period in 2019 **Raw figures
Source: based on Survey of Corporate Business Statistics (Ministry of Finance)

1) See Section 1 of this chapter regarding flow of people and trend in household consumption.
2) The fixed costs ratio for the manufacturing industry after 2020 Q2 was approximately 20%
for all scales.

Part Ⅳ

Total

118

Chapter 2 / The Economies of Japan and Kansai: A Retrospective and Outlook

quarters from 2020 Q2. With the likelihood of an improvement to the decreases
in sales looking uncertain due to the prolonged spread of infections, it appears
that firms are keeping down labor costs by adjusting work hours and personnel
to reduce fixed costs.
With regards to finance, the retained earnings is decreasing significantly.
Additionally, due to concerns over worsening finances due to the decrease insales, it appears that firms are securing their liquidity from hand as cash anddeposits by financing through interest-bearing debt, mainly borrowing.
(ii) Trends in the Eating and Drinking Services Industry
Next, looking at the revenue-related index for the eating and drinking services
industry in Table 2-2-2, we see the continued worsening of sales and ordinary profits, although not to the extent seen in the accommodation industry.
In particular, due to requests for shorter business hours and for suspension ofrestaurants serving alcohol under the second and third declarations of a state of
emergency, the decrease rate grew in 2021 Q1 and Q2. Additionally, similar to
the accommodation industry, the eating and drinking services industry is also
an industry with high fixed costs, such as labor costs and rent, and many firms
are believed to have recorded a loss due to decreased sales. Even with support
from the Employment Adjustment Subsidy, the pressure to adjust employment
due to deteriorating revenue must have been high.
In terms of finance, the earned surplus has decreased significantly. AnothEarnings and financial trends in the eating and drinking services
industry

Table 2-2-2

Unit: ％

Total
Sales
Revenue

AssetsLiability /Net assets

Ordinary profits

20Q1

20Q2

20Q3

20Q4

21Q1*

-2.1

-29.6

-8.0

-6.1

-19.2

21Q2*
-24.5

-182.6-435.6-237.6-103.8-300.1-145.7-39.2

Labor costs

7.3

-17.4

-7.6

-3.9

-5.0

Fixed costs ratio**

34.7

34.0

31.4

31.7

37.5

25.8

Cash/deposits

23.6

19.2

41.9

32.7

69.6

67.4

Tangible fixed assets

12.6

-11.5

5.4

13.3

-4.5

0.2

Short-term debts

-10.1

-28.8

-15.7

-13.0

-8.2

-7.5

Corporate bonds

-22.7

-39.7

-44.9

-39.3

-24.0

-30.2

Long-term debts

15.5

6.3

47.2

32.8

27.2

132.7

Total net assets
Retained earnings

30.8

-13.4

-7.0

-27.7

5.0

-18.2

53.9

-15.1

-54.7

-51.9

-45.1

-58.4

Note: *relative to the same period in 2019 **Raw figures
Source: Based on Survey of Corporate Business Statistics (Ministry of Finance)

119

Section 2 / The COVID-19 Pandemic and the Responses of Firms: A Deteriorating Revenue Environment and Employment Adjustment

Table 2-2-3

Earnings and financial trends in the manufacturing industry

Part ⅡIn the non-manufacturing industry, the decrease rate was larger comparedto nationwide for both sales and ordinary profits in 2020 Q2 and Q3 (Table 2-24). It then gradually contracted until the decrease rate grew again with the issuing of the third declaration of a state of emergency, and the difficult revenue
environment is continuing. As seen in Table 2-2-3, since sales and ordinary

Part Ⅲ(2) Revenue and Financial Situation of Firms in Kansai
Next, we will discuss the revenue and financial situation of firms in Kansai, categorizing them into manufacturing and non-manufacturing industries and describing their characteristics compared to the nationwide situation.
First, in the manufacturing industry, sales and ordinary profits after 2020
Q2 not only declined less significantly compared to other companies nationwide,
but they recovered to increase in Q4 and 2021 Q1 (Table 2-2-3). This may be
because in Kansai, production among firms recovered thanks to increase in exports such as semiconductors.

Part Ⅰer characteristic is an increase in financing through long-term debt. Government-affiliated financial institutions are increasing their financial support in
response to the prolonging of the COVID-19 pandemic, and such policy factors
may have also backed the financing of firms3).

20Q1
Revenue
AssetsLiability /Net assets

Japan

20Q2

20Q3

20Q4 21Q1* 21Q2*

20Q1

Sales

-4.5 -11.3

-8.9

0.7

1.1

-0.2

-3.3 -19.1 -11.6

20Q2

20Q3

20Q4 21Q1* 21Q2*
-2.6

-4.3

-2.7

Ordinary profits-7.5-5.7 -18.5

11.5

71.5

49.7

-22.6 -37.2 -26.8

21.9

29.5

38.3

Fixed costs ratio

-4.2

-4.4

-3.4

-1.7

-1.8

-0.2

-0.2

-2.2

-2.9

-2.8

-3.3

-0.7

Cash/deposits

-9.1

18.2

12.0

13.7

15.2

29.4

1.4

25.6

26.1

22.6

20.0

19.3

Short-term debts

11.4

27.0

20.5

-9.3

32.6

21.4

14.0

23.2

21.7

10.1

14.9

9.1

Corporate bonds

22.4

12.8

31.4

34.4

64.2

44.5

23.4

15.9

28.0

23.9

51.5

41.8

Long-term debts

11.7

17.3

5.6

-6.3

3.5

-6.9

10.1

18.8

18.7

8.0

9.4

9.0

Total net assets

1.0

11.9

7.6

-1.4

6.4

10.1

-0.6

1.2

0.8

0.3

3.2

6.0

9.9

19.0

14.7

-0.1

16.3

13.0

2.7

3.1

2.1

0.7

7.2

7.5

Retained earnings

Note: *relative to the same period of 2019
Source: Based on Survey of Corporate Business Statistics (Kinki Local Finance Bureau, Ministry of Finance)3) As an example, unsecured, interest-free loans are available through both the COVID-19
Special Loan Program by Japan Finance Corporation and the Special Interest Subsidy Program. The deadline is expected to be extended from the end of December 2020 to March ofnext year.

Part Ⅳ

Unit: ％

Kansai

120

Chapter 2 / The Economies of Japan and Kansai: A Retrospective and Outlook

Table 2-2-4

Earnings and financial trends in the non-manufacturing industry
Unit: ％

Kansai
20Q1
Revenue
AssetsLiability /Net assets

20Q2

20Q3

Japan

20Q4 21Q1* 21Q2*

20Q1

-5.0

-2.5 -14.0-8.6 -16.5 -11.8

Ordinary profits-41.4 -48.2 -26.3 -62.0-6.6 -20.2-45.2 -26.7 -25.8 -35.7 -25.9-3.0

Fixed costs ratio

-1.3

-6.0

-1.1

-2.7

-0.0

-3.2

-3.2

-7.3

-4.4

-3.5

-7.7

-5.5
18.5

Sales

-5.8 -19.8 -12.2

20Q2

20Q3

20Q4 21Q1* 21Q2*-7.0-8.0 -12.1

Cash/deposits

0.4

26.1

24.8

26.7

26.7

36.9

-0.8

28.5

19.4

24.4

18.5

Short-term debts

10.1

19.7

10.7

10.3

33.1

42.0

7.0

29.7

29.3

25.8

24.8

24.8

Corporate bonds

6.9

10.6

24.2

25.7

42.2

43.5

9.7

15.9

18.4

16.3

31.2

31.2

Long-term debts

1.3

3.6

6.4

3.8

4.5

8.7

2.4

9.3

8.8

8.9

10.2

10.2

Total net assets

4.6

2.8

1.8

0.1

6.3

4.6

1.5

3.5

1.4

0.0

3.2

3.2

7.0

5.3

2.8

0.3

6.7

7.2

-0.0

2.1

-0.3

-2.4

0.9

0.9

Retained earnings

Note: *relative to the same period in 2019
Source: Survey of Corporate Business Statistics. (Kinki Local Finance Bureau, Ministry of Finance)

profits recovered to increase in the manufacturing industry, a “K-shaped” recovery has been observed in Kansai as well. Additionally, fixed costs continue
to decrease both nationwide and in Kansai, indicating that employment adjustment has been implemented. Financially, cash and deposits grew more in the
non-manufacturing industry in Kansai compared to nationwide, showing thatthey are carefully accumulating funds on hand.

2. Economic Shock and the Labor Market(1) Spread of Infections and Characteristics of the Labor Market
With employment adjustments increasing in response to the worsening performance of firms, the local employment situation is also increasingly deteriorating. Here, we will outline the movement of the labor market in Kansai in FY
2020, when it was greatly impacted by the COVID-19 pandemic.
On average in FY 2020, the labor force in Kansai decreased by −30,000 compared to the previous year to 10.82 million people, while the non-labor force
population increased by +10,000 for the same period to 7.18 million people. The
number of employed persons decreased by −90,000 for the same period to 10.49
million people, while unemployed persons increased by +60,000 for the same
period to 340,000 people. The unemployment rate was 3.1%, up +0.5%pt from theprevious year (2.6%).

4) An employed person not at work refers to a person who did not work at all during the weekof the survey despite having a job, who is (1) an employee who received or is expected toreceive salary or wages (including leave allowance) or who is (2) a self-employed worker
who has kept his/her business and for who 30 days have not passed since being absent
from the job.

Part Ⅱ(i) Early Phase of the Spread of Infections to the Declaration of aState of Emergency Period: January to June 2020
Table 2-2-5 shows the movements in the labor market in Kansai based on quarterly data for the period being discussed.
Since 2020 Q1, the employment environment in Kansai, which had beenfavorable, changed for the worse. In particular, the number of employed persons
that previously had continued to increase changed to a decrease and the unemployment rate, which was in the low 2% range, rose to 2.8%, beginning to show
the impact of COVID-19.
The biggest change occurred in 2020 Q2. Due to an increase in new infections, people began refraining from job seeking activities to avoid being infected, leading to a significant +210,000 increase in the non-labor force populationcompared to in the previous period (out of the labor force). Additionally, with theissuing of the declaration of a state of emergency and restricted economic activities, demand for labor dropped rapidly and the number of employed persons
decreased significantly, down −240,000 people for the same period. However,
unemployed persons increased by only +20,000 for the same period (the unemployment rate was up +0.2%pt for the same period), which was a small increase

Part Ⅲ

Particularly noteworthy is the number of employed persons not at work4),
which increased by +140,000 from the previous year (290,000 people) to 420,000
people on average in FY 2020. Such an increase in the number of employedpersons not at work may have suppressed the rise in the unemployment rate
to some extent. Consequently, the rate of employed persons not at work (no. of
employed persons not at work ∕ no. of employed persons) was 4.0%, up +1.3%pt
from the previous year (2.7%). The nationwide average rate of employed persons
not at work for FY 2020 was 3.9%, thus the rate was higher in Kansai.
Next, we will divide the period of analysis into three as we did in Section 1 ofthis chapter to look at the movements in the labor market in Kansai during the
COVID-19 pandemic and describe the characteristics. The three periods are (i)The early phase of the spread of infections to the declaration of a state of emergency period (January to June 2020), (ii) The period of recovery from bottom(July to December 2020), and (iii) The period of infection resurgence (January
to September 2021).

Part Ⅰ

121

Part Ⅳ

Section 2 / The COVID-19 Pandemic and the Responses of Firms: A Deteriorating Revenue Environment and Employment Adjustment

122

Chapter 2 / The Economies of Japan and Kansai: A Retrospective and Outlook
Movements in the labor market in Kansai during the COVID-19
pandemic

Table 2-2-5【Real Number】(Unit: 10thousand people, %pt)

Labour
force
2019

2020

2021

Not in labour force

Employed
person not
at work

Employed
persons

Ⅲ

1,087

715

1,062

28

26

2.4

1,091

711

1,063

32

27

2.5

Ⅰ

1,092

710

1,062

30

30

2.8

Ⅱ

1,071

731

1,038

72

32

3.0

Ⅲ

1,074

728

1,041

34

32

3.0

Ⅳ

1,089

710

1,054

33

36

3.3

Ⅰ

1,096

703

1,062

30

35

3.2

Ⅱ

1,088

711

1,051

37

35

3.3

Ⅲ

1,081

714

1,049

35

32

3.0

Not in labour force

Employed
persons

Employed
person not
at work(Unit: 10thousand people, %pt)
Labour
force

2020

2021

Unemployment rate

Ⅳ

【Difference】

2019

Unemployedpersons

Unemployedpersons

Unemployment rate

Ⅲ

15

-16

20

3

-3

Ⅳ

4

-4

2

4

1

-0.3
0.1

Ⅰ

1

-1

-1

-1

3

0.3

Ⅱ

-21

21

-24

42

2

0.2

Ⅲ

3

-3

2

-38

0

0.0

Ⅳ

15

-18

13

-0

3

0.3

Ⅰ

7

-6

8

-3

-1

-0.1

Ⅱ

-8

7

-10

7

0

0.1

Ⅲ

-7

3

-2

-1

-3

-0.3

Note: Seasonal Adjusted by APIR
Source: Labour Force Survey. (Statistics Bureau, MIC)

compared to the decrease rate in the number of employed persons. This was
possibly due to the fact that in addition to labor supply side factors, such as anincrease in the non-labor force population, the number of people losing their job
remained within the number of employed persons not at work, which is includedin the number of employed persons, due to the expansion of the Employment
Adjustment Subsidy that is described later (the number of employed persons
not at work increased by +420,000 for the same period).
(ii) Period of Recovery from Bottom: July to December 2020
In 2020 Q3, the decrease rate of the number of employed persons declined
due to activities of firms resuming on the lifting of the declaration of a state of
emergency. Additionally, the number of employed persons not at work, which

Section 2 / The COVID-19 Pandemic and the Responses of Firms: A Deteriorating Revenue Environment and Employment Adjustment

123(2) Comparison with the Global Financial Crisis
Figure 2-2-3 compares how the key labor indicators recovered in Kansai fromthis COVID-19 shock and from the global financial crisis. In particular, we will
focus on the range of declines after the shocks occurred and how long it took
to recover to levels similar to the peaks before the crises occurred. The peak5) Since the economic share in Kansai of the three prefectures (Kyoto, Osaka, and Hyogo)
where infection control measures were implemented exceeds 80%, the impact on economic
and social activities is believed to have been greater compared to the nationwide share ofprefectures (60%) in which infection control measures were implemented.

Part Ⅱ
Part ⅢPart Ⅳ(iii) Period of Infection Resurgence: January to September 2021
In 2021 Q1, the labor force recovered above the 2019 Q4 pre-COVID-19 level.
Additionally, the number of employed persons increased by 210,000 in 2020 Q4
and 2021 Q1 thanks in part to the resumption of economic activities and the government’s consumer stimulus programs. However, because the number of employed persons fell by −230,000 from 2020 Q1 to Q3 due to the COVID-19 shock,there is still about 20,000 people needed in order to recover from the decline.
After that, in 2021 Q2, which was affected by the fourth wave of infections
and the third declaration of a state of emergency, the labor force and the number of employed persons both decreased down to levels below those in 2020
Q4. The number of employed persons not at work increased again to 370,000
people. In the most recent 2021 Q3, unemployed persons decreased while thenumber of employed persons also decreased at a similar level, which was by nomeans good. Behind this was the downward pressure on employment causedby economic activities being suppressed because of infection control measurestaken in response to the surge in the number of new positive cases due to the
spread of a COVID-19 variant5). The employment situation in Kansai continues
to be harsh.

Part Ⅰ

had increased rapidly in Q2, decreased by −380,000 to 340,000 people. In themeantime, the labor force and unemployed persons increased slightly, indicating that some people had resumed job seeking activities and shifted to being
unemployed persons.
In Q4, there was an increase in the number of employed persons. The reason for this was that demand for labor recovered in the service industries, suchas food service and travel, as a result of consumer stimulus programs like Go To
Travel (began on July 22) and Go To Eat (began on October 1).

124

Chapter 2 / The Economies of Japan and Kansai: A Retrospective and Outlook【Labour force】（08Q1,18Q3=100）
102【Unemployed persons】（08Q1,18Q3=100）
150

101

140

100

21Q3

99

130

98

110

97

100

96

‒4 ‒3 ‒2 ‒1

0 1 2 3 4 5 6 7 8(Quarterly before/after the ivent)

COVID-19

21Q3

120

90

‒4 ‒3 ‒2 ‒1

0 1 2 3 4 5 6 7 8(Quarterly before/after the ivent)

COVID-19

Grobal Financial Crisis

Grobal Financial Crisis【Employed persons】（08Q1,18Q3=100）
101【Employed person not at work】（08Q1,18Q3=100）
350

100

300

99

21Q3

250

98

200

97

150

96

100

95

‒4 ‒3 ‒2 ‒1

0 1 2 3 4 5 6 7 8(Quarterly before/after the ivent)

COVID-19

Figure 2-2-3

Grobal Financial Crisis

50

21Q3
‒4 ‒3 ‒2 ‒1

0 1 2 3 4 5 6 7 8(Quarterly before/after the ivent)

COVID-19

Grobal Financial Crisis

Changes in labor-related indicators after the economic shock

Note: Seasonal Adjusted by APIR
Source: Labour Force Survey. (Statistics Bureau, MIC)

corresponds to the adjusting of the Japanese economy after the shock6).
Looking at these graphs, the difference between the two economic shocks
is clear. In relation to the labor force, the decline immediately following theshock was greater with the COVID-19 shock than with the global financial crisis. However, looking at the time it took to recover, a gradual decrease continued
for a long period with the global financial crisis, but with the COVID-19 shock,the pre-COVID-19 peak had been exceeded by four quarters after the shock
occurred (2021 Q1). The number of employed persons shows a similar trend,
more or less recovering to the pre-COVID-19 peak four quarters after the shock
occurred. With the COVID-19 shock, a major evaporation of demand occurred
within a short period, impacting the labor market as well. However, the recovery
after the shock occurred much faster than after the global financial crisis. These
results show that the COVID-19 shock has the characteristics of being a “supply
6) The peak prior to the crisis is 2008 Q1 for the global financial crisis and 2019 Q3 for the
COVID-19 shock. See Section 3 of this chapter for the adjustment process of real GDP, etc.

Section 2 / The COVID-19 Pandemic and the Responses of Firms: A Deteriorating Revenue Environment and Employment Adjustment

125(1) Characteristics by Industry: Impact Is Significant in Face-to-Face
Services and among WomenFirst, we will look at the characteristics by industry in Kansai. Figure 2-2-4
shows the contribution by industry for the number of employed persons (YoY)
in Kansai. Looking at the total for males and females, in Kansai, employment had
been increasing in industries such as “Accommodations, eating and drinking
services” and “Living-related and personal services and amusement services”
supported by strong inbound demand. However, when inbound-related demand
evaporated due to the COVID-19 shock, it changed to a decrease, down −0.5%
YoY in 2020 Q2. In the order of contribution, they were “Accommodations, eating and drinking services” (−0.9%pt), “Education, learning support” (−0.7%pt),
and “Wholesale and retail trade” (−0.4%pt), and they account for a large portionof the decrease in the overall number of employed persons, which was mainly inthe face-to-face service industry.
Similarly, looking at the contribution by industry for females, in 2020 Q2,
there was a −0.9% decrease YoY, which is a greater decrease compared to themale and female total. By industry, the contributions were greater in the order ofPart Ⅱ
Part ⅢIn the first subsection, we saw from national financial data that the COVID-19
shock can be characterized by its significant impact on the non-manufacturingindustry, particularly the face-to-face services industry, as a result of the suspension of economic activity. While an improvement of the sales-decrease situation seems uncertain, firms are adjusting employment to reduce fixed costs. In
this subsection, we will analyze the characteristics of employment adjustment in
Kansai during the COVID-19 pandemic.

Part Ⅳ

3. Trends in Employment Adjustment during the COVID-19
Pandemic

Part Ⅰ

shock” caused by suppressed economic activity due to the avoidance of personal
contact to prevent infections.
However, despite such sudden pressure to adjust employment, the increase
rate in unemployment persons with the COVID-19 shock has been more gradual than with the global financial crisis. Additionally, it is different in that the
number of employed persons not at work has been increasing significantly. It
appears that through support, such as the Employment Adjustment Subsidy, thenumber of employed persons not at work, which is a category in the breakdownof the number of employed persons, increased, preventing a sudden increase in
the number of unemployed persons in Kansai as well.

126

Chapter 2 / The Economies of Japan and Kansai: A Retrospective and Outlook【Total】（%,%pt）
4.0
3.0
2.0
1.9 2.2 2.1
2.0
0.9
1.0 0.5 0.1
-0.5
0.0
-0.9
-1.1
-1.0
-1.9
-2.0
-3.0
Ⅰ Ⅱ Ⅲ Ⅳ Ⅰ Ⅱ Ⅲ Ⅳ Ⅰ* Ⅱ* Ⅲ*
2019
2020
2021

【Female】（%,%pt）
6.0
4.0
2.0

1.7

0.0

3.4 3.2

2.4

0.4

1.9
-0.9

-2.0

0.6

-1.4

-3.5

-4.0
-6.0

-1.4

Ⅰ

Ⅱ Ⅲ
2019

Ⅳ

Ⅰ

Ⅱ Ⅲ
2020

Ⅳ Ⅰ* Ⅱ* Ⅲ*
2021

Etc
Manufacturing
Construction
Wholesale and retail trade
Medical, health care and welfare
Education, learning support
Living-related and personal services and amusement services
Accommodations, eating and drinkin services
All industries

Figure 2-2-4

Contribution by industry for the number of employed persons in
Kansai

Note: *relative to the same period of 2019
Source: Labour Force Survey. (Statistics Bureau, MIC)

“Accommodations, eating and drinking services” (−1.3%pt), “Education, learning support” (−1.3%pt), and “Wholesale and retail trade” (−0.6%pt). So, even byindustry, females have been particularly impacted.
(2) Characteristics by Employment Type: Adjustment Pressure Is
High for Part-Time Workers
Next, we will look at the characteristics by employment type. Figure 2-2-5 looks
at the YoY changes in the overall number of regular employees, full-time employees, and part-time employees in the six Kansai prefectures.
The overall number of regular employees changed to a decrease YoY in
April 2020 when the first declaration of a state of emergency was issued andsubsequently remained negative. Looking at the breakdown, the number of fulltime employees dropped below the previous year in Kansai in January 2020 andcontinued to decrease until recovering with the return of production activities.
On the other hand, the number of part-time employees continue to remain below the number in the previous year since May 2020. Comparing nationwide
and Kansai, the decrease rate in part-time employees was larger in Kansai. Thissuggest that employment adjustment pressure was higher in Kansai than nationwide mainly for part-time employees who are relatively easier to adjust compared to full-time employees.
In general, the face-to-face service industry has a high ratio of non-regular
employees and part-time employees and is more likely to be impacted when theSection 2 / The COVID-19 Pandemic and the Responses of Firms: A Deteriorating Revenue Environment and Employment Adjustment

127（%,%pt）
6.0
4.0
2.0
0.0
‒2.0
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8
2021

Figure 2-2-5

Employment indices in Kansai

Note: Establishment with 5 or more employees, YoY % change
Source: Monthly Labour Survey. (Ministry of Health, Labour and Welfare)revenues of firms deteriorate. Since the ratio of part-time employees is higher in
Kansai than nationwide, the impact may have been significant. In Figure 2-2-4
shown previously, we mentioned that female employees in face-to-face service
industries such as “Accommodations, eating and drinking services” decreased
due to the COVID-19 pandemic. Looking at the decrease in female employees by
age group (Figure 2-2-6), in 2020 Q2, the 35 to 44 years group decreased mostsignificantly, but with the economy worsening, we can see that the decrease has
spread to more age groups, such as the 25 to 34 years group. These age groups
include many women who work part-time or as temporary or contracted workers on who the impact is believed to have been significant.
In summary, due to decrease in the sales of firms, the COVID-19 pandemic
hit women in Kansai particularly hard, as they work as non-regular part-time
employees in face-to-face service industries in which the fixed costs ratio is high.

4. Trends in Employment Adjustment Subsidy
The Employment Adjustment Subsidy (hereinafter referred to as “EAS”) is a
subsidy program to support firms that were forced to downsize their businesses
due to reasons such as economic fluctuations but that strived to retain theiremployees. EAS subsidizes the costs of reduction in working time in the formof temporary leave, training, or secondment. The purpose of this subsidy is to
avoid layoffs during temporary recessions to prevent social unrest caused by arising unemployment rate.

Part Ⅰ

Full-time Employee

Part-time Employee

Part Ⅱ

Regular Employee

2020

Part Ⅲ

2019

Part Ⅳ‒4.0

128

Chapter 2 / The Economies of Japan and Kansai: A Retrospective and Outlook（%,%pt）
4.0

2.8

2.4

2.0

1.1

0.0

-0.9

‒2.0
‒4.0

-1.0

-1.4
-3.3

Ⅰ

Ⅱ

Ⅲ

Ⅳ

Ⅰ*

2020

Ⅱ*

Ⅲ*

2021

15 to 2425 to 34

55 to 64

65years old and over

35 to 44

45 to 54

15years old and under

Figure 2-2-6

Contribution by age of employed women in Kansai

Note: *relative to the same period of 2019
Source: Labour Force Survey. (Statistics Bureau, MIC)

Since its establishment in 1975, the EAS has been utilized as a means ofretaining employment, and a temporary relaxation of its payment requirements
and expansion of the subsidy have been implemented whenever a major economic shock hit7). Faced with the sudden deterioration of the employment situation due to the COVID-19 pandemic, the government implemented measures,such as simplifying the application process, in addition to extending eligibility
to non-standard workers and easing the payment requirements. Other unprecedented expansions were implemented as well. The eligibility criterion which
requires the decline in production or sales of an establishment in the last threemonths to reach a certain threshold is relaxed to one month. Moreover, theeligibility is extended to non-standard workers who are not enrolled in employment insurance, and the maximum amount of the subsidy received is significantly increased. These special measures were extended until March 2022.
As a result, the number and amount of EAS payments have been rising rapidly. Looking at the cumulative number of EAS payment decisions for the global
financial crisis and the COVID-19 pandemic shown in Figure 2-2-7, the rapid increase in payments due to the COVID-19 pandemic is striking. In one year since7) Expansions in the past include special measures for the global financial crisis in 2008, special measures for the Great East Japan Earthquake in 2011, relaxing of requirements in
response to the appreciation of the yen in the same year, and special measures for typhoons
No. 15 and 19 in 2019.

Section 2 / The COVID-19 Pandemic and the Responses of Firms: A Deteriorating Revenue Environment and Employment Adjustment

129(Thousand)
6,000
5,000
4,000
3,000
2,000
1,000
0

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24(Months after the expansion of Employment Adjustment Subsidy)

May 2020, the cumulative number of payment decisions reached 3.23 million
cases, far exceeding the 790,000 cases in FY 2009 when the impact of the global
financial crisis was at its greatest. The cumulative number of payment decisions
in Osaka Prefecture (EAS and Emergency Employment Stabilization Subsidy
combined) increased from zero cases in the previous year to 270,000 cumulative
cases in FY 20208).
On a macro basis, EAS is said to have suppressed the rise in the unemployment rate because the increase in the unemployment rate was small relative tothe significant decrease in working hours and production during the COVID-19
pandemic, but these effect needs to be investigated further using statisticalmethods. Additionally, special measures, which are positioned as measures fora short-term recession, have been extended multiple times due to the prolonged
COVID-19 pandemic and continued for over a year and a half. The exhaustion offinancial resources for EAS and damage from its prolonged use are concerned.
In the future, the focus must be shifted to policies that move surplus labor to
growth sectors, such as support for firms that change their business, job placement and training for job seekers, etc.

5. Conclusion
In this section, we looked at the trends relating to the deteriorating revenue8) Based on materials from Osaka Labour Bureau distributed in a regular press conference on
March 29, 2021.

Part Ⅰ

Source: Based on open data. (Ministry of Health, Labour and Welfare)Part Ⅱ

Cumulative number of EAS payment decisions due to the global
financial crisis and the COVID-19 pandemic

Part Ⅲ

Figure 2-2-7

COVID-19

Part Ⅳ

Grobal Financial Crisis

130

Chapter 2 / The Economies of Japan and Kansai: A Retrospective and Outlook

environment and employment adjustment in firms during the COVID-19 pandemic. COVID-19 significantly decreased the revenue of firms in the non-manufacturing industry. Among them, fixed costs are high in the face-to-face service
industries such as the accommodation industry and eating and drinking services industry, and many firms have incurred large deficits. With an improvement to the decreasing sales situation looking unlikely due to the prolonged
spread of infections, firms are cutting labor costs by reducing personnel, etc.
Particularly in Kansai, employment had been increasing in industries such as
the accommodation industry and eating and drinking services industry thanks
to the strong inbound demand. However, with the COVID-19 shock, significant
employment adjustment pressure has been imposed mainly on women working
as non-regular part-time employees in these industries.
As of the time of writing this report on November 9, the fifth wave that
became the biggest spread of infections due to a highly contagious variant has
subsided and the infection situation has improved nationwide. However, thesituation in face-to-face service industries continues to be harsh. In order forsales to increase in the face-to-face service industries, the number of new infections must continue to remain low while tourism demand recovers. Under thesecircumstances, the government announced on October 26 that the vaccination
rate of the second dose of the COVID-19 vaccine has exceeded 70%. With thevaccination program making good progress, economic activities are expected
to normalize and employment adjustment pressure to ease. Meanwhile, at thesame time surplus labor that has stagnated due to EAS, which is meant to bea short-term measure for maintaining employment, must be shifted to growth
sectors and industries with labor shortages.