It is mid-afternoon and the bright and cheerful visitors' rooms of "Hello Work", Japan's public job search agency, in central Tokyo, are packed.
Middle-aged men in suits sit with their briefcases by their sides, as if ready to jump into any office job at the first call. More casually dressed younger men and women study leaflets on job prospects and training courses as they await their turn at counselling booths.
With Japan facing its fourth recession in a decade and unemployment expected to climb above an unprecedented 5 per cent, the crowds that visit "Hello Work" are likely to swell even further. The probable outcome will be upheaval for a society that has prided itself on the social stability that comes from widespread lifetime employment.
What is more, growing unemployment, which will further dampen private consumption, poses a threat to prime minister Junichiro Koizumi's programme of structural reforms, which he has pledged to implement as a step towards economic recovery.
"The employment issue is likely to be a big challenge for Mr Koizumi's coalition [government]," warns Takehiro Sato, economist at Morgan Stanley Dean Witter in Tokyo. "Deterioration of the labour market could trigger a setback of his reforms."
Signs of the damage to come are mounting. Last week, Fujitsu said it would slash 5,000 jobs in Japan in response to the global downturn in information technology. Even Matsushita, the consumer electronics maker, a paragon of Japanese-style long-term management, has taken the previously unthinkable step of introducing an early retirement programme. "Japanese corporations, which had refrained from large-scale job cuts in the hope that the economy would soon rebound, are starting to shed excess labour as those hopes diminish," says Atsushi Seike, professor of labour economics at Keio University.
Beyond the cyclical downturn and increased competition abroad, unemployment is set to increase as a result of a much-needed structural adjustment of the Japanese economy that will require transferring capital and labour from inefficient sectors to those promising future growth.
Japan has lagged behind other industrialised countries in making this transition. About 6.2 million people work in the construction sector - 10 per cent of the workforce - and public works comprise 7 per cent of Japan's gross domestic product, compared with 3 to 4 per cent in Europe and the US. In contrast, 60 per cent of the Japanese workforce is employed in service industries, against 71 per cent in the US and 67 per cent in the UK.
The problem is that measures to spur this structural adjustment, such as the government's proposal to force banks to write off a significant portion of their bad loans, are expected to add to growing job losses. By the government's own admission, bad debt write-offs alone could destroy between 390,000 and 600,000 jobs. Private economists put the figures even higher.
The government's advisers hope that by deregulating the services sector, it can create new jobs to absorb the expected increase in unemployment. Demand for new services in healthcare, education and information technology could create 5.3 million new jobs over five years, says Yoshio Higuchi, a professor at Keio University who is a member of the government's advisory team.
But many private economists are sceptical. For one thing, Japanese labour policy has for decades been aimed at keeping labour mobility to a minimum. "Japan's labour policy has been based on the idea that there should be no unemployment," says Prof Seike. The goal was to maintain lifetime employment - often through industry-specific subsidies - rather than help people find jobs, he says.
As a result, Japan does not have the legal framework or institutional infrastructure to provide the kind of information dissemination, counselling and job training needed to spur labour mobility, particularly across industries. For example, only three out of 10 former construction workers seeking employment find jobs outside the industry.
The government has started to tackle this problem with legislation aimed at facilitating the shift of workers from declining to emerging sectors. For example, employment subsidies will be provided to companies that hire dismissed workers. But unless steps are taken to improve the social safety net and ensure retraining, doubts will remain.
Toshihiro Kodama, senior fellow of the Research Institute of Economy, Trade and Industry, says one of the biggest challenges is the mismatch between the skills required in growth sectors and those of the workers who lose their jobs. This is highlighted by the fact that unemployment did not fall even as the job vacancy rate rose from 1.9 per cent in April 1999 to 2.7 per cent in December 2000, Mr Kodama says.
This mismatch is also reflected in the disturbing increase in unemployment among young people. The highest proportion of unemployed is among those aged 15-24, for whom the jobless rate in June was 9.5 per cent. "The educational establishment has not been able to keep up with the changes in the job market," says Takahisa Dejima, associate professor of economics at Waseda University.
Furthermore, there is a mismatch in age qualification, with many companies reluctant to hire those over 50. But because of Japan's ageing society, unless older workers can also be retrained, new growth businesses will find it difficult to fill jobs, says Mr Seike.
To support this retraining, the government will need to reform Japan's unemployment safety net, which is ill-equipped to deal with the longer period that the jobless stay unemployed, economists say. By international standards, Japan's unemployment benefits are generous but are not provided for a long enough period, says Mr Seike. The Japanese maximum period of 330 days is a third of that in Germany and a fifth of that in France.
