Cabinet Office, Government of Japan

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Annual Survey of Corporate Behavior(Summary)FY2006(April 20,2007)

Background and purpose of the survey

Japan is in the midst of a major turning point in population dynamics as the baby boomer generation reaches the mandatory retirement age of 60 in 2007. Japanese companies are now facing great challenges in their employment policy posed by the retirement of skilled workers and the securing of the labor force to replace them.

Japan's macroeconomy has been experiencing a long expansion since a trough in January 2002 with widespread improvement in the employment situation.

On the other hand, the measures taken since the latter half of the '90s to cope with the recessions - reduction of the labor costs by unemploying regular employees, reducing the recruit, raising the ratio of nonregular to regular employees and so forth - now result in various challenges over the employment policies of companies, such as high unemployment rates among young people, shortages of mid-level human resources, and the "difficulty of accumulating and handing down the technical know-how due to the use of labor force outside the company."

In relation to those challenges, this survey fetures the impact of the retirement of baby boomers on employment.

Organization of the survey results

Chapter I, following the previous surveys, provides the results of the research on the business environments and basic management policies surrounding companies, i.e. expectations of economic conditions, demands, foreign exchange rates, and purchases/sales prices, and the current states and expectations of the capital investment, employment, and overseas production.

Chapter II, the "impact on employment caused by the retirement of the baby boomer generation," presents the results of the survey as follows; the trends of business conditions, sales and current profits, the proportion of baby boomers in the employees, current employment condition, the impact on your employment by the retirement of baby boomers, the age brackets for which increase of employees is expected, employment trends by job type and employment pattern, and employment policies for baby boomers under the age to start receiving pension benefits.

Survey system

(1)Period of the research: January 2007.

(2)Survey items:

(i) Business environment and management policy

(ii) Impact on employment caused by the retirement of the baby boomer generation

(3)Coverage: corporations listed in the first and second sections of stock exchanges in Tokyo, Osaka and Nagoya (2,522 companies in total).

(4)Survey method: self-reporting mailing method using prescribed questionnaire.

(5)Number of companies that responded: 1,042 (570 of manufacturing sector and 472 of non-manufacturing sector).

(6)Response rate: 41.3%.

Main findings of the survey

  1. Listed companies forecast the growth of the Japanese economy at 2.1% in real term and 1.7% in nominal term over the next three (FY2007-2009) or five (FY2007-2011) years, higher than 1.9% and 1.6% in the previous year's forecast, respectively. The forecast in nominal term has been lower than in real term. The expected industry-specific demand growth rates are higher in real than in nominal term, and up from the previous year in both nominal and real terms.

    The forecast of the exchange rate of the yen against the U.S. dollar one-year ahead stands at 115.5 in all-industry average, slightly stronger than 117.3 of the spot rate in the preceding month and a little weaker than 113.2 of the forecast in the previous year. The rate for exporting companies to break even is forecast 106.6, weaker than 104.5 in the previous year, and closer to the spot rate.

    The forecast of the average purchase price one year ahead is positive as in the previous year, while the forecast of the average sales price slightly turns positive (from -0.2% to 0.2%). The terms of trade are as negative as in the previous year.

    The forecast of capital investment over the next three years (FY 2007-2009) is 5.3% in all-industry average down (for the first time in five years) from 5.9% in the previous year.

  1. Combination of domestic and overseas productions: The actual ratio of companies that implement overseas production is 63.2% in FY2005, higher than the estimate for FY2005 (60.4%) and the actual for FY2004 (59.6%) in the previous survey. However, the trend is downword to 62.8% for FY2006, and 62.4% for FY2011, in comparison with the upward trend in the previous year.

    On the other hand, the ratio of output of overseas production is 15.2% for FY2005 on the actual basis (14.8% on the estimate basis in the previous year), 16.1% for FY2006, on the estimate basis, and 17.3% for FY2011, higher than in the previous year, respectively.

    By type of manufacturing industry, the ratio of output of overseas production and that of companies implementing overseas production are up and stay flat respectively in process manufacturing industries, up and down in basic materials industries. Overall, it is possible that, while some companies currently producing overseas would go on increasing the ratio of overseas production, some other companies, especially in basic materials industries, would stop overseas production, resulting in bipolarization.

    The ratio of reverse imports (ratio of Japan-bound production to overseas production) is up to 26.1% for FY2005, on the actual basis higher than in the previous year (22.6% for FY 2004 on the actual basis, and 22.7% for FY2005 on the estimate basis). Although expected to remain flat at actual 25.5% for FY2006 with a forecast of 25.7% for FY 2011.

    As the reason for maintaining domestic production bases 24.6% of the responding companies answer "Because sophisticated technology is employed, which makes overseas production difficult", which is the most common reason as well as in the previous year, followed by "Because domestic production enables flexible response to domestic demand such as supply of a wide variety of products in small batches." Notable is a sharp decline, in basic materials industries, of the reason "Because it costs less to utilize the existing production facilities."

    On the other hand, as the reason for maintaining production bases overseas, the most commonly answered is "Because of the possibility to secure good-quality and low-cost labor" at 35.4% (34.0% in the previous year), followed by "Because local product demand is brisk or is expected to grow in the future" at 33.0% (39.9% in the previous year) which is the most commonly answered in the previous year. By type of industry, "Because local product demand is brisk or is expected to grow in the future" stays as the most commonly answered reason at 37.6% in basic materials industries.

  1. The impact on employment resulting from the retirement of baby boomers is as follows: With respect to corporate employment trends of the past and future, the growth rate of the number of employees over the past three years (FY2004-2006) and that expected for the next three years are higher than in the previous year's survey, indicating a robust trend.

    During the past three years, the employment grew at an annually average rate of 1.5%, and by sector 1.3% in the manufacturing sector, 1.8% in the nonmanufacturing sector. Over the next three years it is expected to grow at 2.3%, 1.9% in the manufacturing, 2.9% in the nonmanufacturing.

    Current profits, sales and labor costs: The percentages of companies expecting increase of the sales and current profits are far greater than those of companies expecting "decrease", indicating the improvement of earnings. The difference between the percentage of companies expecting "increase" in labor costs and that of companies expecting "decrease" has sharply widened, by close to 10 percentage points, from the previous year's survey, although to a lower level than in sales and current profits.

  1. As to the proportion of baby boomers, the proportion is "0% to 5% (not incl.)" in 43.7% of companies, "5% to 10% (not incl.)" in 37.1%, "10% to 15% (not incl.)" in 13.7% , "15% or greater" in 5.4%, and the average (mean value) is 6.4%. By sector, the proportion is 7.1% in the manufacturing, and 5.5% in the nonmanufacturing. By industry, the proportion is as high as 9.5% in petroleum and coal products, 9.1% in warehousing and transportation, 8.8% in rubber products, 8.7% in iron and steel, and 8.6% in construction, while as low as 3.1% in banking, 3.5% in information and telecommunications, and 3.6% in retail trade.

    "Current employment condition" is strongly insufficient as a whole, on the back of robust business conditions, and improved sales and earnings expectation, especially in the nonmanufacturing. By industry, the difference between the percentage of companies reporting insufficiency and that of companies reporting excess is as high, indicating strong insufficiency, as 75.0% points in rubber products, 70.6% points in nonferrous metals, in 68.0% points information and telecommunications, and 65.0% points in real estate, while as low as -60.0% points in petroleum and coal products, -7.7% points in pulp and paper, and -5.6% points in electricity and gas.

    Better business condition is seemed to correlate with stronger current employment condition.

    In relation to the proportion of baby boomers, current employment condition is less insufficient at companies with the proportion of baby boomers of 15% or above, compared with of less than 15%.

    The impact caused by the retirement of baby boomers is "no impact" for approximately 60% of companies on an all-industry basis while "insufficiency strengthened" for 42.8% in the manufacturing and for 48.5%, or nearly half of companies in process manufacturing industries, in particular.

    By industry, the proportion of companies reporting "no impact" is high for electricity and gas at 94.4%, information and telecommunications at 92.0%, marine transportation at 87.5%, and real estate at 85.0%. The proportion of companies reporting "insufficiency strengthened" is high for rubber products at 62.5%, petroleum and coal products at 60.0%, machinery at 57.0%, and nonferrous metals at 52.9%.

    In relation to the current employment condition, the most common impact is "excess resolved" among companies whose current employment condition is "excessive," "insufficiency strengthened ," among "insufficient" , "no impact" among "appropriate."

    In relation to the proportion of baby boomers, "insufficiency strengthened " or "excess resolved" is more common among companies with the higher proportion of baby boomer employees, and "no impact" among lower proportion.

    The impact caused by the retirement of baby boomers is not seemed to have correlation with the business condition forecast.

    As to the age brackets for which increase of employment is expected, regarding, more than 80 percent of companies expect increase of employment of the aged 20s or below for regular employees, while, though the highest percent of among all age brackets, only about 50 percent of companies expect increase of the aged 20s or below for nonregular employees. Only 1.6% of companies expect increase of employment of the aged 60s or above for regular employees, compared to 12.1% for nonregular employees. Among companies with the proportion of baby boomers of 15% or above, increase is commonly expected in the aged 40s for regular employees in the age 30s for nonregular employees.

    Job types with the highest expected rate of increase of employees: "persons engaged in work requiring expertise (specialists in certain fields, such as accounting, legal matters, finance, and R&ampD)" is reported by 45.2% of companies, "persons having high-level skills required in work sites(skilled workers)" 29.8%, "persons engaged in routine work in work sites(unskilled workers)" 13.6% , "persons engaged in routine work (office work)" 7.6% and "managerial staff" 3.8%.

    By sector, "persons with expertise (specialists in certain fields, such as accounting, legal matters, finance, and R&ampD)" is the most commonly reported in the manufacturing, while "persons having high-level skills required in work sites (skilled workers) is in the nonmanufacturing. "Persons engaged in routine work (office work)" account for 4.1% in the manufacturing, compared with higher 12.3% in the nonmanufacturing.

    Notable is a high percent recorded by "persons having high-level skills required in work sites (skilled workers)" among companies with the proportion of baby boomers of 15% or above. By pattern of employment, regular employees are sought for "Persons engaged in work requiring expertise (specialists in certain fields, such as accounting, legal matters, finance, and R&ampD)," "Persons with high-level skills required in work sites (skilled workers)," and "managerial staff," while nonregular employees for "Persons engaged in routine work in work sites (unskilled workers)," and "Persons engaged in routine work (office work)."

    As to the employment policy for baby boomers under the age to start receiving pension benefits, "will reemploy applicants as contract workers, part time workers" is the most common.

Contact

Questions about this survey can be made to HERE

Cabinet Office, Government of JapanEconomic and Social Research Institute
1-6-1 Nagata-cho, Chiyoda-ku, Tokyo 100-8914, Japan.