Despite a gradual improvement in Japan’s economic conditions, a labour shortage is slowly starting to bite in industries such as restaurants and manufacturing in which many people decided to switch jobs while on furlough amid the Covid-19 pandemic.

A sharp decline in the number of foreign workers and students due to pandemic measures has also had a significant impact on the labour shortage, shining a spotlight on Japan’s reliance on foreigners in the workforce.

Warakuan, a soba noodle restaurant in Taito ward, Tokyo, was busy at the end of last month when year-end gatherings are typically held and orders of toshikoshi soba, a traditional dish eaten at the end of the year, increase.

But the restaurant was short-staffed over the holiday season following the resignation of five employees during the state of emergency when business operations were reduced.

According to the Bank of Japan’s Tankan quarterly economic survey released last month, the index of “excessive employment” minus “insufficient employment” for accommodation, dining and drinking services was minus 17, a sharp decline from the plus 19 in September.

The labour shortage rapidly worsened after restrictions on business operations were relaxed at the end of September following the end of the state of emergency.

The labour situation is pushing up hourly wages. United and Collective Co, which operates the Teketeke izakaya chain, has raised hourly wages by an average of 130 yen ($1.10) at about 80 outlets since October.

The hourly wage is 1,450 yen for regular shifts at some outlets in central Tokyo, and more than 1,800 yen for night shifts after 10pm. Even so, the company said it closed nine stores as of the end of last year because it was unable to hire enough staff.

According to Dip Corp, which operates the job listings website Baitoru, the average hourly wage for part-time restaurant workers was 1,036 yen in November, up 3.4 per cent or 34 yen year-on-year, and up 12 yen month-on-month.

The increase in restaurant job openings has been higher than that of all other industries.

Nakazato Corp, which runs six eateries in the Tokyo metropolitan area, raised its hourly wage when it hired staff after the state of emergency. “We were able to hire people who wanted to change jobs during the pandemic,” the company president said.

Labour shortages are also impacting the manufacturing industry. Automakers have been hiring more short-term workers and increasing pay.

Interworks Inc, which operates a listings site for jobs in the manufacturing industry, said the average hourly wage in the sector was 1,363 yen in November, up 96 yen year-on-year.

According to the Tankan survey, the index of “excessive employment” minus “insufficient employment” for the entire manufacturing industry was minus 14, the lowest level since the minus 15 logged in the March 2020 survey.

Demand for automobiles and home appliances has been strong amid the pandemic, and workers are needed to boost production, following operation cutbacks due to semiconductor shortages.

A sharp decline in the number of foreigners coming to Japan has exacerbated labour shortages in a wide range of industries.

The manufacturing sector relies on foreign trainees in the workforce but the number who entered Japan in 2020 dropped to about 105,000, down 55 per cent from the previous year, according to the Immigration Services Agency of Japan. In the January-October period last year, about 26,000 foreign trainees came to Japan.

The number of foreign students, many of whom work part-time in restaurants and other businesses, who entered Japan to attend school in 2020 was also down 68 per cent from the previous year to about 163,000. Only about 28,000 were studying in Japan in the January-October period last year.

In anticipation of a recovery in the tourism sector, the transport industry has been eager to secure drivers, whose number plummeted following the outbreak of the pandemic.

Bus driver positions on the Doranabi job listings site doubled in Tokyo and Osaka in December, compared to the summer period.

“It is difficult to predict when the number of foreign visitors will return to pre-pandemic levels as it depends on the pandemic situation in Japan and overseas,” said Shinichiro Kobayashi, chief researcher at Mitsubishi UFJ Research and Consulting Co. “As the Japanese economy recovers, the labour shortage may worsen even more.”

The number of people who have been unemployed for more than a year is increasing despite labour shortages.

According to the Ministry of Internal Affairs and Communications’ Labour Force Survey, the monthly average of long-term unemployed people was 680,000 in the July-September period in 2021, up 180,000 from the same period the previous year. A labour mismatch is thought to be behind the problem.

Clerical workers who lose their jobs tend to seek similar roles. They avoid finding jobs in relatively low-paying fields such as food and nursing care services, resulting in prolonged unemployment. In some cases, it is thought that some people have been unable to find jobs because they lack the required skills.

The ratio of job openings to job applicants in November was 0.29 for clerical positions, but 3.70 for nursing care roles and 4.20 for construction jobs, indicating job seekers outnumber openings for clerical roles while the latter fields are experiencing severe labour shortages.

A 52-year-old woman who was looking for a job at a HelloWork employment office in Tokyo said she quit a temporary position in an office in June 2020 because she fell ill.

“I’m looking for a clerical job because it’s a field in which I have a lot of experience, but the employment office keeps recommending nursing care positions,” she said. “But it’s difficult for me to do that kind of work because I have a back problem.”

In the fiscal 2021 supplementary budget, the government included an expansion of a system under which unemployed people can receive training while receiving benefits to address the labour mismatch issue.

It will offer subsidies to universities that offer courses for workers who want to switch careers and enter the medical and nursing sector.