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April 2002, Vol. 125, No. 4

Utilization of labor resources in Japan and the United States

Toshihiko Yamagami

Studies comparing unemployment rates in the United States and Japan on the basis of pre-1994 U.S. definitions and concepts of unemployment have engendered considerable debate concerning procedures for adjusting the rates for comparability across national boundaries. The debate can be boiled down into the following two points: (1) Japan’s official unemployment rate was being understated because the Japanese definition of unemployment was quite different from those of other developed countries. (2) Japan’s expanded unemployment rate, in which the scope of unemployment was enlarged to include other forms of labor underutilization, was relatively high among developed countries, compared with its low official unemployment rates.

In opposition to the first argument, many labor economists asserted that Japan’s official unemployment rate was changed only slightly by adjustments based on U.S. definitions and concepts and that the rate was well below the U.S. official unemployment rate even after the adjustment. These same economists agreed, however, with the second argument and recognized that Japan’s labor market was not as efficient as the official unemployment rate indicated. The reason for this gap, they maintained, was the existence of a relatively large degree of slack in the labor pool, consisting of workers who were pushed into hidden unemployment during recessions (for example, discouraged workers).

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