The youth labour market in Japan has gone through major upheavals over the past two decades. Until the early 1990s, it was characterised by a rapid transition of school leavers into stable employment, low unemployment and low job turnover. These patterns were explained by a combination of strong labour demand and a unique school-to-work transition system in which schools were directly linked to firms and provided placement services to most of their students. In a context of generalised lifetime employment practices, firms hired new staff upon school completion with the prospect of long-term employment and provided intensive on-the-job training to new hires.

This chapter examines youth labour market performance over the past decade in Japan, and assesses the problems faced by today’s young people. It presents traditional labour market indicators as well as new ones, such as NEET rates (neither in employment nor in education or training, Section 1). Then, it examines the school-to-work transition process, i.e. the road from school to the first job, the mobility of young workers, and their early career stages. The effect of labour market dualism on youth employment is also analysed in Section 2.

Historically, Japan has succeeded in combining a high level of education with small disparities in educational attainment among its population. A rapid rise in the educational attainment has also contributed to faster economic growth. However, questions have emerged in recent years regarding: the lack of diversity of the education system; its limited responsiveness to rapidly changing labour market demands; and a declining level of basic education, as suggested by recent international test results (OECD, 2006b).

In general, youth employment tends to be highly sensitive to the aggregate economic situation. Macroeconomic policies which provide a suitable framework for expanding overall labour demand in a sustainable fashion are therefore crucial to enhance job prospects for young people. However, there are demand-side issues more directly related to the labour market. High levels of wages, minimum wages or non-wage labour costs are likely to create obstacles to youth employment. Overly strict employment protection legislation (EPL) can also serve as a disincentive for employers wanting to hire young workers. Some workplace practices might also function as an impediment to the smooth transition from school to work. Among the various issues on the demand side, this chapter focuses on employment practices, wages and non-wage labour costs, and employment regulations with a view to highlighting possible future reform agendas.

As reviewed in the previous chapters, young people in Japan today are facing more difficulties during the school-to-work transition period compared with previous generations. They experience more frequent and longer spells of unemployment and inactivity, as well as a higher probability of switching between precarious jobs. Responding to this new situation requires high quality job-search assistance, training and other employment support programmes provided by public employment service (PES). Equally important is to ensure that youth are covered by adequate unemployment benefit schemes.