Japan’s low unemployment rate on paper suggests an economy weathering the coronavirus reasonably well, but official figures belie worsening prospects for the country’s army of temporary workers, who make up about 40% of the jobs market.

Japan was hit by its biggest economic slump on record in the second quarter as the coronavirus pandemic emptied shopping malls and crushed demand for cars and other exports, bolstering the case for bolder policy action to prevent a deeper recession.

The third straight quarter of declines knocked the size of real gross domestic product (GDP) to decade-low levels, wiping out the benefits brought by Prime Minister Shinzo Abe’s ‘Abenomics’ stimulus policies deployed in late 2012.

While the economy is emerging from the doldrums after lockdowns were lifted in late May, many analysts expect any rebound in the current quarter to be modest as a renewed rise in infections keep consumers’ purse-strings tight.

While the contraction was smaller than a 32.9% decrease in the United States, it was much bigger than a 17.8% fall in Japan in the first quarter of 2009, when the Lehman Brothers collapse jolted global financial markets. The size of Japan’s real GDP shrank to 485 trillion yen, the lowest since April-June 2011, when Japan was still suffering from two decades of deflation and economic stagnation.

Japan’s jobless rate stood at 2.8% in June, much lower than 10.2% in the United States and 7.8% in the 19-member eurozone.

But a close look at data shows a rising number of people dropping out of the jobs race. That prevents the official jobless rate - the ratio of job seekers who are yet to land work - from rising much.

About 2.4 million furloughed workers are kept on payrolls backed by state subsidies, which the government is seeking to extend beyond its end-September expiration.

“The huge number of furloughed workers suggests companies are saddled with excess labour and are under pressure to cut jobs down the road,” said Hisashi Yamada, senior economist at Japan Research Institute. “Job losses will hurt Japan’s economic recovery as they spread to broader sectors in coming years, eroding households’ purchasing power,” he said.

Japan’s economy plunged by a record pace in the second quarter as the pandemic hit consumption and exports.

In the jobs market, the pain has been felt most by those categorised as “non-regular workers,” including those with low-paying, part-time jobs, who make up 38% of all employees in Japan.

Non-regular workers account for roughly three quarters of those employed by restaurants and hotels, many of which were hit hard by the pandemic, according to the labour ministry. A government survey showed more than 40,000 workers, about 15,000 of whom are non-regular workers, have been laid off since February.

One worker in her 20s, who was employed as temp staff at a call centre in Kanagawa prefecture, quit her job in June.

“My employer would not allow us non-regular workers to work from home,” she told Reuters, on condition of anonymity. “I was told that I could take time off but would not be paid, so I quit, thinking it’d be better living on unemployment insurance.”

Reuters