If Japan's Lost Decade Is Any Lesson, America's Youth Are Completely Screwed

In the mid and late 90s, Japan experienced a deep recession that was mainly rooted in a collapse of land and property prices and the aftermath of sovereign debt crises in other East Asian countries.

Riva Fromovich points us to a 2000 study by The University of Tokyo’s Yuji Genda of what happened to Japanese youth during the recession. It is ugly.

First, the hiring rate of new graduates relative to the initial number of employees, using human resource stock variables as explanatory variables in a regression analysis:

Click to enlarge.

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Photo: Yuji Genda

Genda:

The hiring rate of new graduates relative to the initial number of employees is significantly lower at establishments with a higher share of employees aged 40-five or older. In particular, high school graduates had greater difficulty finding full-time jobs in large establishments with a higher share of older employees. There were also fewer college graduates recruited by these establishments. Those with nonscientific majors (bunkei in Japanese) were least likely to be hired. The regression model can be applied to data from 1991 to 1996, and the negative and significant coefficient on the middle-aged and older employee ratio is observed in every year. 

 Next, job growth rates (declines) per capita by age — they basically collapsed for young folks:

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Photo: Yuji Genda

Finally, job growth rates by age and sector. The drop off for younger workers is especially noticeable at large firms:

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Photo: Yuji Genda

The reason for these results are somewhat unique to Japan: the country boasts the toughest separation laws among OECD nations; in most cases employers have a judiciary duty either to verify just cause for dismissals or to attempt alternative measures to avoid them.

This makes it harder to get rid of older employees and easier to not hire young people.

But it was mostly the effect of basic plunging labour demand caused by total GDP declining 25 per cent.

Genda’s conclusion about what this would mean for Japan is pretty scary:

An increase in youth joblessness may cause social problems in Japan. The youth crime rate is closely linked to labour market conditions (Ohtake and Okamura 2000). The failure to transfer skills from older generations to younger generations might seriously affect future productivity in the Japanese economy.

Youth unemployment has reached 16.8% in the US.

The Japan experience has an ominous lesson for the US. Politicians love to talk about ensuring the economy is strong for future generations, but when they do, they’re usually talking about the national debt, and how we need to lower it.

But the killer for youth is lack of growth. Slowing the economy through austerity is the exact opposite thing that should be done for future generations.

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