Business May 2013

What Americans Should Understand About Japan's 1990s Economic Bust

The slacker trap
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Akio Suga/EPA/Corbis

Hiroki Iwabuchi is slouched over a bowl of noodles in his pool-table-size apartment, peering at the camera that’s filming him. He slurps absently for awhile, and then a friend joins him—he’s come to cut Iwabuchi’s hair. It’s hard for anyone to look natural during a haircut, but Iwabuchi barely seems alive. Squatting over a pile of newspapers, shirtless under a trash-bag smock, he doesn’t look tired so much as defeated, like a dog that has given up on being adopted.

In 2006, at the time of the filming, Iwabuchi was 23. Unable to find a regular job after college, he had signed on with a temp agency that sent him to a Canon factory two hours outside Tokyo. His workweek went as follows: ride company-owned bicycle to factory for 8 o’clock start time (a.m. or p.m., depending on the day), place lids on ink-jet printer cartridges for nine hours, return to Lilliputian company apartment, eat ramen, repeat four times. According to Iwabuchi, his wages weren’t high enough to live on, so he had to find other work to make ends meet.

Every weekend, he took the train to Tokyo to perform manual labor at whatever odd job a second temp agency texted to his phone. He earned enough to buy dinner at McDonald’s and pay the $10 fee to sleep in a chair at an Internet café. By Sunday night, he had just enough money left for train fare back to his apartment.

Iwabuchi documented his life on a cheap Sony camcorder, cobbling the footage into Freeter’s Distress. The film was not terribly popular: 2007 Japan was in no mood to wallow. The economy was the best it had been since the country’s titanic real-estate bubble burst in 1990. Growth, employment, and real-estate prices were all picking up. Japan’s central bank had recently raised interest rates above zero for the first time in almost six years.

So Iwabuchi’s film was an unwelcome comedown. It reminded viewers that millions of young people displaced after the bubble burst still lived in poverty and, more controversially, that this was not a lifestyle choice. Freeter translates roughly to “slacker”—the popular myth at the time was that young people like Iwabuchi were just lazy.

Today, there is no doubt that Japanese youth are in distress. Although the green shoots of the mid-aughts didn’t exactly wither, neither did they blossom into a full-blown recovery. Like bonsai, the economic gains stayed small—until they were obliterated by the global financial crisis of 2008 and 2009. In a report released last year, the government’s principal labor economist openly fretted about the lack of opportunity for young Japanese today, and what that means for the nation’s future.

While Japan struggles to escape from economic permafunk, America’s economy seems to be getting better. Many Americans today have a sense that the worst is behind us and that, if this recovery is anything like those of the ’80s, ’90s, and early 2000s, the next few years could be good ones.

But we should spare a thought for our friends across the Pacific—not just for their sake but for ours as well. No one knows why Japan’s economy never fully recovered, but some economists are starting to trace the problem to young people like Iwabuchi who cannot find good jobs, don’t learn new skills, and neither earn nor spend enough to help get the economy moving. That generational problem, while far more advanced in Japan, is not unlike our own.

When Japan’s real-estate bubble burst, young people had no point of reference other than boom times. So when the job market dried up, many of them welcomed the chance for self-exploration. In 1990, the Los Angeles Times reported on these young freeters, who rejected “conformist Japanese culture and its 15-hour workdays” in favor of “working odd jobs for spare cash” and “hanging out.” The freeters pioneered funemployment.

But while the term freeter stuck, the choice to be out of work was soon anything but free. The first freeters are now in their late 30s and early 40s. Almost one-third do not hold regular jobs, and some never have. One-fifth still live with their parents. This perpetual failure to launch has taken a psychological toll. Aging freeters file six of every 10 mental-health insurance claims. Japan’s suicide rate rose by 70 percent from 1991 to 2003, and the proportion of suicide victims in their 30s has grown each of the past 15 years.

What is most alarming is that things keep getting worse for subsequent generations. Today, more than 20 years after Japan’s bubble burst, youth unemployment is higher than ever. Only half of working 15-to-24-year-olds have regular jobs, and another 10 percent are unemployed. The rest are “nonregulars.” Somewhat akin to temp positions in the U.S., Japan’s nonregular jobs pay half as much as regular jobs, offer few benefits, and can be eliminated on a whim—which they often are. The portion of young Japanese working as nonregulars exploded in the mid-1990s and has marched upward ever since.

After years of profit pressure, Japanese companies have all but stopped hiring regular employees, and most young job-seekers must choose between an unstable job and no job at all. The companies claim they are just reacting to the weak economy: sinking profits call for cost control, and nonregulars are both cheap to employ and easy to fire.

But why has Japan’s economy been so lousy for so long? One possibility is that economic stagnation and job insecurity feed on each other—that the sorry state of workers who graduated into Japan’s recession in the early 1990s has hindered growth and, in turn, dimmed job prospects for today’s graduates. Perhaps precarious youth employment is both a symptom and an agent of economic decline.

Chronic job instability has serious consequences. Most obviously, financially insecure young adults do not make for mighty consumers; many members of Japan’s rising generation of workers can barely afford to rent an apartment, for instance, never mind buy a house. But job instability also impedes professional growth and wastes human potential, and in the long run, these can be more-ruinous developments. Over the past 20 years, as the share of nonregulars in the Japanese workforce has nearly doubled, Japan’s productivity has barely improved. A growing body of research links these two developments.

Naoki Shinada, an economist at the Development Bank of Japan, explains that in the immediate aftermath of an economic shock, it makes sense for companies to use temporary and part-time workers to control costs and maintain flexibility. But problems arise when this becomes the standard hiring practice, making it “more difficult for firms to maintain some skills embodied in their labor force.”

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