Unemployment in Japan: now falling to the long-term level around 5%

In June and August 2009, we posted on the evolution of unemployment in Japan [P1] and [P2], which predicted the rate of 6.0% in August 2009. In the latter post we had to update the prediction and reduce the expected level of unemployment, as dictated by new readings of labor force. Moreover, we found that the level of unemployment in July was likely the peak value and the rate of unemployment in Japan would be decreasing since August 2009 according to the long term forecast (Kitov; 2006, 2007).

On the 2nd of October, the reading for August 2009 was reported by the Statistics Bureau of Japan. The (seasonally adjusted) rate for August was measured at 5.4%, i.e. 0.3% lower than in July. This observed decline is in line with that based on the model linking the rate of unemployment, UE(t), to the rate of change of labor force, dLF(t)/LF(t):

UE(t)= -1.5*dLF(t)/LF(t) +0.045 (1)

Figure 1 updates the observed and predicted curves for 2009. Because the accuracy of short-term estimates provided by labor surveys is not high, the monthly estimates of unemployment and labor force are prone to large measurement errors. The discrepancy between the observed and predicted curves likely manifests the problems with measurements. Figure 2 presents a mid-term view. In 2007 and 2008, the predicted unemployment was lower that the observed one, but in 2009 both variables are essentially the same (see Figure 1). In the long-run, the rate of unemployment in Japan will asymptotically approach 5.2% (Kitov, 2007), as displayed in Figure 3.

From relationship (1), we can conclude that the rate of unemployment in 2009 will likely undergo additional decline. The peak rate of unemployment is left behind, but its further decrease will accompany the decline in the level of labor force.

References

Kitov, I., (2006). The Japanese economy, MPRA Paper 2737, University Library of Munich, Germany, http://ideas.repec.org/p/pra/mprapa/2737.html
Kitov, I., (2007). Exact prediction of inflation and unemployment in Japan, MPRA Paper 5464, University Library of Munich, Germany, http://ideas.repec.org/p/pra/mprapa/5464.html

Figure 1. Observed and predicted rate of unemployment in Japan in 2009.

Figure 2. Observed and predicted rate of unemployment in Japan between 1998 and 2008.

Figure 3. Prediction of the evolution of unemployment rate in Japan between 1990 and 2050 (Kitov, 2007).
Notice excellent prediction between 1998 and 2007 with the peak value in 2001.