Expanding Labor Market Despite Decreasing Population
Japan is facing a severe labor shortage, at least if you believe the headlines. The same headlines that were proclaiming the "2024 Trucker Crisis" due to annual overtime being capped at 960 hours (!), and even before that, announced the "2025 Digital Cliff". Alas, armageddon is not yet upon us.
Take the logistics crises as an example. Suddenly, it became possible to combine loads, not only within the same company, but also across competitors. New businesses were born to co-ordinate and consolidate. A drop in service level? Not as far as I can tell.
This is another way of saying that worker productivity in Japan, in particular in the service sector, is appallingly low. GDP per capita (both in PPP terms and current dollars) has been eclipsed by Taiwan and Korea, for example. So for the "virtuous wage/price spiral" to extend beyond inflation (which we still have not consistently reached, with real wages falling again throughout 2025), productivity improvements will also be required.
Labor shortages are industry-specific and regional. They also follow a barbell shape, tending to be clustered among lower skilled workers (e.g., demolition workers, servers, conbini staff) and high-skilled labor (e.g., software engineering, AI experts). At the macro level, the story is quite different.
The Japanese labor market data for November 2025, released at the end of December, reveals significant structural shifts beneath stable headline rates. A concurrent year-over-year (YoY) increase in both total employment and total unemployment necessitates a deeper analysis to understand the market's underlying dynamics. While employment continues its long-term expansion, the rise in unemployment is not a sign of economic weakness but an indicator of a tightening labor market attracting new participants. The total labor market - employed plus unemployed persons - has exceeded 70 million people now.
The primary labor market statistics for November 2025 are as follows:
- Total Employed Persons: The number of employed persons reached 68.62 million, a YoY increase of 480,000. This marks the 40th consecutive month of employment growth, underscoring sustained momentum in job creation.
- Total Unemployed Persons: The number of unemployed persons rose to 1.71 million, a YoY increase of 70,000, representing the fourth consecutive month of growth.
- Seasonally Adjusted Unemployment Rate: The unemployment rate held steady at 2.6%, unchanged from the previous month.
- Labor Force Participation: The non-labor force population decreased by 750,000 over the year to 39.37 million, a substantial decline indicating increased engagement with the job market.
- Employment Rate: The overall employment rate climbed to 62.5%, a YoY increase of 0.5 percentage points, reinforcing the trend of greater labor market engagement.
These high-level indicators point to a market in transition. The following sections will deconstruct these figures to offer a more detailed examination of the qualitative changes in the employment landscape and the factors driving unemployment.
1. Detailed Employment Analysis: Qualitative Shifts and Structural Changes
Evaluating the composition of employment growth is crucial for assessing the labor market's true health. This section deconstructs the headline employment figure to analyze the qualitative shift in job stability, the gender dynamics powering this transformation, and the performance of key economic sectors.
1.1 A Structural Shift Towards Stable Employment Driven by Women
The most significant development is a profound structural shift towards more secure, regular employment, a trend overwhelmingly dominated by female workers.
- Regular Employees: The number of permanent employees reached 37.56 million, a substantial YoY increase of 810,000. Critically, women accounted for over 70% of this growth, gaining 570,000 regular positions compared to an increase of 250,000 for men.
- Non-Regular Employees: In stark contrast, non-regular employment (part-time and temporary roles) fell by 300,000 to 21.22 million. This decline was disproportionately driven by men, who saw a decrease of 270,000, while female non-regular employment fell by only 50,000.
This data demonstrates a significant qualitative improvement in the labor market, with the economy creating more stable positions. The narrative is not just that women are driving overall employment growth, but that they are dominating the gains in secure, permanent roles while men are leaving non-regular positions at a much higher rate. This qualitative improvement appears to be having a disproportionate effect on female labor force participation, as the next section will detail.
1.2 Gender Dynamics in Employment Growth
The employment outcomes for men and women have diverged sharply over the past year, with women being the sole engine of net job creation. This is most powerfully illustrated by the employment rate for the 15-64 age group:
- The female employment rate (15-64) increased by a staggering 1.5 percentage points YoY.
- The male employment rate (15-64) decreased by 0.1 percentage points over the same period.
In absolute terms, female employment grew by 520,000 YoY to 31.62 million, while male employment fell by 40,000 to 37.00 million. These figures confirm that women were the exclusive drivers of Japan's net employment growth over the past year.
1.3 Industry-Specific Performance
Job growth patterns across industries highlight the current drivers of the Japanese economy.
Sectors with Notable Growth | Sectors with Notable Contraction |
Medical, Welfare: +240,000 | Wholesale and Retail Trade: -180,000 |
Information and Communication: +190,000 | Agriculture, Forestry: -120,000 |
Construction: +180,000 |
These sectoral shifts suggest an economy leaning on service-oriented and domestic-focused industries. Strength in "Medical, Welfare" reflects ongoing demographic needs, while growth in "Information and Communication" points to the expanding digital economy. Robust gains in "Construction" indicate continued investment in infrastructure. Conversely, contractions in "Wholesale and Retail Trade" and "Agriculture, Forestry" highlight ongoing structural challenges.
Having established the robust and qualitatively improving nature of employment, we now turn to the seemingly contradictory rise in unemployment.
2.0 Analysis of Unemployment Dynamics
The simultaneous rise in employment and unemployment reflects an expansion of the labor force as improved job prospects pull more people into the market to actively seek work. This section analyzes the composition of the unemployed to identify the specific factors driving this dynamic.
2.1 Deconstructing the Rise in Unemployment
The YoY increase in unemployment is not driven by job losses but by an influx of new market entrants.
- Unemployment due to "Involuntary separation (layoffs for business reasons)" was unchanged YoY at 220,000.
- Unemployment due to "Voluntary separation (quitting for personal reasons)" was also unchanged YoY at 710,000.
- The key driver was the category of "Newly seeking work," which increased by 60,000 YoY to 470,000.
The increase in individuals newly seeking work (+60,000) was the primary driver, accounting for over 85% of the total YoY rise in unemployment (+70,000). This indicates that improving job quality is encouraging more people to start their job search.
2.2 Gender and Age Disparity in Unemployment
Mirroring employment trends, the unemployment data shows a significant divergence between genders and reveals specific age-related pressures.
- The number of unemployed men rose by 120,000 YoY. This increase was concentrated in older demographics, specifically the 45-54, 55-64, and 65+ age groups.
- In contrast, the number of unemployed women decreased by 60,000 YoY, with the fall most notable in the 45-54 and 55-64 age groups.
This precise demographic data suggests that older male workers are facing re-employment challenges, while mid-career women are successfully transitioning into jobs.
2.3 Month-over-Month Stability
While YoY figures show an increase in job-seeking, recent month-over-month seasonally adjusted data suggests a stabilizing near-term situation.
- From October to November 2025, the total number of unemployed persons decreased by 40,000.
- The seasonally adjusted unemployment rate showed a gender divergence: the male rate increased to 2.9% (+0.1 points), while the female rate fell to 2.2% (-0.2 points).
This short-term data indicates that while the annual comparison reflects an expanded pool of job seekers, the most recent monthly trend points towards stabilization.
3. Concluding Synthesis: An Evolving Labor Market
The November 2025 labor market data demonstrates a fundamentally robust and positively evolving market. The analysis reveals two powerful, interconnected trends: first, strong employment growth characterized by a significant qualitative improvement in job stability. Second, a concurrent rise in YoY unemployment fueled not by job losses but by an influx of new job seekers entering the labor force.
This dynamic indicates a tightening labor market. The substantial creation of stable, regular positions (+810,000 YoY) acts as a powerful "pull factor," encouraging more people—especially women—to actively seek employment. This influx temporarily swells the ranks of the unemployed as they search for roles, explaining the dual increase in employment and unemployment. The November 2025 data, therefore, points to a significant and positive transformation in Japan's employment structure, characterized by enhanced job stability and increased labor force participation.
Norbert Gehrke
