An Economy Under Stress

Analysis of Historical Unemployment data for Japan (1953-2011)

http://www.uni.edu/becker/japan1.gif

Before the tsunami on March 11, 2011

University students study company brochures before a job interview

Page 1 of 12

After completing the recent study of both the Canadian (1976-2011) and the US (1941-2012) unemployment data (the study of the Australian economy is still to be completed with review of historical data), I have just initiated a study of the Japanese unemployment data and have been able to obtain some historical unemployment data going back 1953. The main purpose here is to call attention to an interesting, and indeed rather troubling, aspect of the unemployment trends for Japan, which seems to have been established since 1998. The Japanese economy appears to be one under severe stress. The US economy also exhibited a similar stressful reaction in 2009, in the first full year of the Obama Presidency, immediately following the financial meltdown in the months preceding the US Presidential election in 2008. It has since improved significantly, see Ref. [1] at the end of this note, but the findings for Japan, to be reported here might also sound a warning of trouble ahead even for the US economy. To appreciate the use of the emotionally charged term stress in this context, we need some background. Very briefly, as discussed in earlier articles, see references provided at the end of this article, both the US and Canadian data reveal a single universal value of the constant h in the law, y = hx + c = h(x x0), relating labor force x and the unemployment level y. Here x0 = - c/h represents a critical labor force, or the cutoff labor force, below which the number of unemployed will go to zero. The numerical value of x0 depends on both the constants h and c in the linear law. The smaller the value of h, the higher the cut-off labor force and the lower the absolute level of the unemployed. An accurate determination of the constant h is therefore very important to gain some insights into why unemployment levels fluctuate, over time, as we see with the Canadian economy (Ref. [5]). The US data points to a value of h = 0.0946 based on an analysis of the three (x, y) pairs for 1941, 1982, and 2010, which represent local maxima being the highest recorded unemployment levels. These three (x, y) pairs can be shown to lie on a PERFECT straight line, with the slopes of the line segments being h = 0.0943 (1941 and 1982), 0.0949 (1982 and 2010) and 0.0946 (1941 and 2010).

Page 2 of 12

The Canadian data for 1976-2010, on the other hand, reveal only two points which represent local maxima. Hence, the slope h of the line joining these two maxima may or may not be significant. (A value of h = 0.072, lower than the US value of h = 0.0946, is deduced from these two points.) However, the Canadian data reveal several local minima as the unemployment level keep fluctuating up and down with the steady increase in the labor force x as a function of time, see Figure 1. A slope h = 0.0966 can be deduced for the Canadian unemployment data if we consider these local minima. Thus, it appears that a single universal value of h 0.0956 can be used to describe both the US and the Canadian unemployment data. We simply envision a series of parallels, with the general equation y = hx + c, with h = 0.0956, sweeping through the x-y unemployment diagrams for both countries. The lower the value of the intercept c, which is analogous to the work function W in Einsteins photoelectric law (this has been discussed in details in Refs.[1-5] and will not be repeated here), the lower the unemployment level. The up and down fluctuations in the unemployment levels are thus due to variations in this work function c, or equivalently, the cut-off labor force x0 = -c/h. For x < x0 the number of unemployed will go to zero. The unemployment level increases at a fixed rate h if the labor force exceeds this critical value (which varies as a function of time). If the labor force increase by a fixed amount x, the unemployment level will always go up by a fixed amount y = hx, assuming the work function c (or cut-off labor force x0) remains constant. The economy will move up or down along one of the parallels, as shown already with both the US and the Canadian data, and also the Australian data. With this background, let us consider the recent trends established in Japan since 1998. The labor force x is simply the sum of the number of employed and unemployed persons in the economy. This typically represents about 60% to 70% of the population of a country (at least for advanced economies like US, Canada, Australia, and Japan). Hence, as we see with the Canadian economy, the labor force x will usually increase as a function of time, see Figure 1. This is a natural law and is the consequence of the natural increase in the population over time. The unemployment levels increase or decrease, i.e., fluctuate, over time, because the of changes what has been called the economic work function c, or the cut-off labor
Page 3 of 12

force x0 = -c/h. We still do not understand all the factors that control this economic work function or the cut-off labor force (being newly reported discoveries by the present author over the past month or so and so obviously not much is known! ) but it is clear that if h is fixed and has a single universal value for the economy, the fluctuations in the unemployment levels can be attributed entirely to the changes in the work function, or the cut-off labor force.
20 18

Labor force, x [millions]

16 14 12 10 8 6 4 2 0 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

Time, t [Calendar year]

Figure 1: The Canadian labor force, x, has been increasing steadily (almost linearly) between 1976 and 2011, the period considered here. The situation with the Japanese economy, on the other hand, which seems to have been established since 1998, defies since natural law and the term severe stress used to describe the Japanese situation seems particularly appropriate. As we see from the data compiled in Table 1, the population has shown a natural increase with the passage of time, since 1998, but the labor force x has fallen, first slowly between 1998 and 2001, then more rapidly, and recently very precipitously, see Figure 2. The effect of these changes on the labor force and the unemployment
Page 4 of 12

levels is also quite revealing and highlights the severely stressful conditions in the Japanese economy. It is to be hoped that bold (political) steps will be taken soon by Japanese leaders to reverse these unfortunate trends of recent years. The devastating earthquake, with the tsunami following (March 11, 2011) and the nuclear crisis faced by Japan has only aggravated an already difficult situation that has been in the making since 1998.

Table 1: Key Unemployment Figures for Japan (1998-2010)

Year 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Population, P (millions) 107.28 107.83 108.36 108.86 109.27 109.62 109.90 110.07 110.20 110.43 110.50 110.50 110.49 Labor force, x (millions) 67.93 67.79 67.66 67.52 66.89 66.66 66.42 66.50 66.57 66.69 66.50 66.17 65.90 Unemployed, y (millions) 2.79 3.17 3.20 3.40 3.59 3.50 3.13 2.94 2.75 2.57 2.65 3.36 3.34 Unemployment rate %, 100(y/x) 4.11 4.68 4.73 5.04 5.37 5.25 4.71 4.42 4.13 3.85 3.98 5.08 5.07

Source: http://www.stat.go.jp/english/data/roudou/lngindex.htm , see under Historical data 2, Annual average figures for Whole Japan. The figure captions accompanying the x-y unemployment diagrams are selfexplanatory and no further discussion is provided. A more detailed analysis of the Japanese unemployment data will be presented separately.

Page 5 of 12

Labor force, x [millions], 1998-2010

68.50

68.00

67.50

67.00

66.50

66.00

65.50 107.0

107.5

108.0

108.5

109.0

109.5

110.0

110.5

111.0

Population, P [millions], 1998-2010

Figure 2: A disturbing trend of decreasing labor force x, with increasing population P is evident for the years 1998-2010. The labor force has decline precipitously since 2007 after showing signs of an expansion between 2005 and 2007. The purpose here is simply to call attention to this disturbing trend without getting to a discussion of the complex socio-economic and political reasons for this trend. A highly unnatural trend, not evident in any of the unemployment data that I have analyzed recently, is also evident in the x-y diagram of Figure 3. Starting with 1998, at the far right and bottom of the graph, the labor force x decreased as the unemployment levels increased. Curiously the unemployment level went through a shallow maximum (in 2002) and started decreasing, with further decrease in the labor force. Then the trend reversed giving rise to the more healthy trend of decreasing unemployment levels with increasing labor force (2005-2007). Then, suddenly the Japanese economy again seems to have made an about turn rising unemployment levels with further decreases in the labor force.
Page 6 of 12

A similar jump in unemployment levels, with decreasing labor force, was observed in the US economy during Obamas first full year in office, see Figure 5 in Ref. [1]. The unemployment level reached a historical high in October 2009, with 15.4 million unemployed. Since then, the unemployment levels have decreased (to 12.75 million in June 2012), with increasing labor force.
4.00

Unemployed, y [millions]

2002
3.50

2010

3.00

1998
2.50

2007
2.00 65.50

66.00

66.50

67.00

67.50

68.00

68.50

Labor force, x [millions]

Figure 3: The severely stressful situation within the Japanese economy is revealed here with the complete about face made since 2007. Labor force has been decreasing and unemployment levels rising since 1998, indicating a rather unhealthy long-term situation which must be URGENTLY reversed.

The links to related articles on the US, Australian, and Canadian economies are given below. 1. http://www.scribd.com/doc/99647215/The-US-Unemployment-Rate-Whathappened-in-the-Obama-years Published July 10, 2012. Obama years.
Page 7 of 12

2. http://www.scribd.com/doc/99857981/The-Highest-US-UnemploymentRates-Obama-years-compared-with-historic-highs-in-Unemployment-levels Published July 12, 2012. All US historical data (1941-2012) 3. http://www.scribd.com/doc/100500017/A-First-Look-at-AustralianUnemployment-Statistics-A-New-Methodology-for-AnalyzingUnemployment-Data, Published July 19, 2012. Recent Australian data (Jan 2011-June 2012). 4. http://www.scribd.com/doc/100720086/A-Second-Look-at-Australian-2012Unemployment-Data Published July 22, 2012. 5. http://www.scribd.com/doc/100910302/Further-Evidence-for-a-UniversalConstant-h-and-the-Economic-Work-Function-Analysis-of-US-1941-2011and-Canadian-1976-2011-Unemployment-Data Published July 24, 2012.

Recent News Item on Japanese Unemployment

http://www.bloomberg.com/news/2012-05-28/japan-s-unemployment-rate-rises-for-first-time-inthree-months.html

Japan Rebound Shows Signs of Cooling as Unemployment Rate Rises

By Andy Sharp and Keiko Ujikane - May 28, 2012 9:46 PM ET Japans jobless rate unexpectedly rose and retail sales fell for a second month, underscoring concern that an economic recovery will lose momentum in the face of gains in the yen and Europes debt crisis. The unemployment rate increased to 4.6 percent in April from 4.5 percent in March, the first increase in three months the statistics bureau said today in Tokyo. The median estimate of 26 economists surveyed by Bloomberg News was 4.5 percent. Retail sales fell 0.3 percent from March, the Trade Ministry reported. Enlarge image

Page 8 of 12

University students study brochures at a job fair hosted by Recruit Co. at Makuhari Messe in Chiba City, Japan. Photographer: Akio Kon/Bloomberg Sony Corp. (6758) is among manufacturers to have announced job cuts that may weigh on an economy that relied on consumer spending for most of its growth in the first quarter. The expansion may slow as boosts from earthquake reconstruction and government incentives to spur spending fade and Europes sovereign-debt crisis and austerity measures cap exports. Employment conditions are not improving, said Masamichi Adachi, senior economist at JPMorgan Securities in Tokyo and a former central bank official. Recent economic indicators and a deterioration in financial markets suggest that strong growth cannot be maintained. The Nikkei 225 Stock Average snapped a three-day rally, falling 0.3 percent as of 10:22 a.m. local time. The yen traded at 79.53 per dollar, compared with a post World War II high of 75.35 in October. BOJ Policy Bank of Japan board members said last month they need to counter the mistaken perception that central bank asset purchases will automatically increase, a record of the BOJs April 27 meeting released yesterday showed. Policy makers have to add stimulus should the yen advance significantly, according to Hiroshi Miyazaki, chief economist at Shinkin Asset Management Co. in Tokyo. The overall unemployment results are not that good, said Azusa Kato, an economist at BNP Paribas SA in Tokyo. Todays employment data suggested a mismatch of jobs and geographic areas is widening. There has been an increase in construction jobs as reconstruction projects in the disaster-struck north have started, pushing up labor demand and costs in those regions, Kato said. At the same time, a succession of Japanese manufacturers have plans to cut job this year, with both Sony and NEC Corp. (6701) announcing cuts of 10,000 workers worldwide. Shares in Renesas Electronics Corp. (6723) fell yesterday to the lowest level on record after the company was said to be planning to eliminate 10,000 jobs and raise 100 billion yen ($1.3 billion) under the latest draft of a restructuring plan.

Page 9 of 12

Spains Woes Spanish Prime Minister Mariano Rajoy yesterday called for a show of force from European authorities as his government sought ways to avoid tapping markets to fund the bailout of the nations third-biggest lender. Europe has to dissipate any doubts about the euro, the premier told reporters in Madrid. It must affirm that the euro is an irreversible project and act in consequence. To contact the reporters on this story: Andy Sharp in Tokyo at asharp5@bloomberg.net; Keiko Ujikane in Tokyo at kujikane@bloomberg.net To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

Page 10 of 12

About the author V. Laxmanan, Sc. D.

The author obtained his Bachelors degree (B. E.) in Mechanical Engineering from the University of Poona and his Masters degree (M. E.), also in Mechanical Engineering, from the Indian Institute of Science, Bangalore, followed by a Masters (S. M.) and Doctoral (Sc. D.) degrees in Materials Engineering from the Massachusetts Institute of Technology, Cambridge, MA, USA. He then spent his entire professional career at leading US research institutions (MIT, Allied Chemical Corporate R & D, now part of Honeywell, NASA, Case Western Reserve University (CWRU), and General Motors Research and Development Center in Warren, MI). He holds four patents in materials processing, has co-authored two books and published several scientific papers in leading peer-reviewed international journals. His expertise includes developing simple mathematical models to explain the behavior of complex systems. While at NASA and CWRU, he was responsible for developing material processing experiments to be performed aboard the space shuttle and developed a simple mathematical model to explain the growth Christmas-tree, or snowflake, like structures (called dendrites) widely observed in many types of liquid-to-solid phase transformations (e.g., freezing of all commercial metals and alloys, freezing of water, and, yes, production of snowflakes!). This led to a simple model to explain the growth of dendritic structures in both the ground-based experiments and in the space shuttle experiments. More recently, he has been interested in the analysis of the large volumes of data from financial and economic systems and has developed what may be called the Quantum Business Model (QBM). This extends (to financial and economic systems) the mathematical arguments used by Max Planck to develop quantum physics using the analogy Energy = Money, i.e., energy in physics is like money in economics. Einstein applied Plancks ideas to describe the photoelectric effect (by treating light as being composed of particles called photons, each with the fixed quantum of energy conceived by Planck). The mathematical law deduced by
Page 11 of 12

Planck, referred to here as the generalized power-exponential law, might actually have many applications far beyond blackbody radiation studies where it was first conceived. Einsteins photoelectric law is a simple linear law, as we see here, and was deduced from Plancks non-linear law for describing blackbody radiation. It appears that financial and economic systems can be modeled using a similar approach. Finance, business, economics and management sciences now essentially seem to operate like astronomy and physics before the advent of Kepler and Newton.

Cover page of AirTran 2000 Annual Report

Page 12 of 12