OECD Employment Outlook 2026: Japan
Table of contents
These country notes provide an overview of the labour market situation in each country based on data from OECD Employment Outlook 2026. This edition has a special focus on geographic disparities in jobs and incomes.
The OECD labour market remains resilient, with employment and labour force participation rates at record highs (72.1 and 76.7% in Q1 2026 on average across countries, respectively) and unemployment low by historical standards (4.9% in May 2026). However, there are increasing signs of weakening, including rising unemployment in many countries, slowing employment growth, and easing labour shortages. Due to the new surge in energy prices, real wages are expected to fall in many countries.
The Japanese labour market has remained stable. The unemployment rate is below the OECD average and has remained almost flat over the past 12 months, standing at 2.5% in May 2026. The employment rate for those aged 15‑64 has slightly increased over the past year, reaching 80.2% in Q1 2026 – one of the highest among OECD countries. While the male employment rate among those aged 15‑64 has slightly declined, the female employment rate has increased by 0.8 percentage points (p.p.) over the past year, reaching 75.7% in Q1 2026.
Japan continues to face severe labour shortages due to population decline and population ageing. Labour demand remains strong relative to labour supply, with firms continuing to report significant recruitment difficulties. According to the Bank of Japan’s Tankan survey, labour shortages remained widespread in June 2026, particularly in non-manufacturing industries and among small and medium-sized enterprises. As demographic pressures continue to intensify, labour shortages are likely to remain a major challenge in the coming years. Nominal hourly wages have increased consistently for more than three years as of April 2026, on a year‑on‑year basis, while real wage growth remains limited as the rising cost of imported goods and services continues to add to inflationary pressure amid the weakening of the yen. As of Q1 2026, real wages had increased by 1.7% on a year-on-year basis, in line with the OECD median. However, they remained 0.1% below the level observed in Q1 2021, which is weaker than the OECD median (+1.2%). Given negotiated wage increases exceeded 5% during this year’s spring wage negotiations (Shunto), as of 1 July 2026, nominal wage growth is expected to continue. OECD projections suggest that real wages will increase by 1.3% year-on-year in 2026, assuming that the disruptions arising from the conflict in the Middle East are significant but relatively short-lived.
Labour market reforms have become one of the most important issues for Japan’s growth strategy. In June 2026, the Labour Market Reform Subcommittee of the Council for Japan’s Growth Strategy compiled policy directions for future reforms. These include strengthening labour supply and achieving economic growth through measures such as improving labour productivity through enhancing reskilling, facilitating smooth labour mobility, enabling flexible working arrangements, and strengthening human resource management practice.
Regional disparities in labour market outcomes are large across the OECD. In over half of OECD countries, employment rates across small regions vary by more than 20 p.p. These disparities do not simply reflect differences in who lives where, but also in the economic opportunities that regions have to offer, and they translate directly into disparities in living standards.
In Japan, there are marked regional disparities in employment rates. The difference in employment rates between the highest- and lowest-performing prefectures is above 9 p.p. among those aged 15 and over. Since the early 2010s, Japan has experienced both a narrowing of regional disparities and a catch-up of lagging regions, which is broadly consistent with the OECD average trend.
Labour mobility from low- to high-employment regions in Japan remains relatively limited and broadly in line with other OECD countries. Regions with persistently low employment have experienced net population outflows of around 0.17%, whereas high-employment regions have seen net inflows of about 0.13% from other parts of the country.
Between 2015 and 2025, statutory regional minimum wages partially contributed to narrowing regional wage gaps in Japan. In fiscal year 2015, the lowest regional minimum wage was 76% of Tokyo’s level. By fiscal year 2025, however, it had increased to 83%.
Place‑based policies play an important role in ensuring equal access to jobs and economic opportunities across regions. Since 2014, Japan has introduced policies to reduce population concentration in the Greater Tokyo Area and create more attractive jobs in regional areas. In 2026, under the Strategy for the Future of Regions, the government is planning to strategically foster industrial clusters and promote the growth of regional industries through the use of local resources.
Non-compete clauses – contract terms that prevent workers from moving to a competitor or starting a competing business – and related contractual restrictions are widespread across OECD labour markets. they covered about 30% of workers in 2025, and are increasingly used beyond highly specialised jobs. While firms may use such clauses to protect trade secrets or investments, evidence suggests they can reduce job mobility, weaken wage growth, slow knowledge diffusion and undermine productivity growth.
In Japan, 22-31% of private-sector employees are currently bound by non-compete agreements compared with an average of 20-30% across the 15 surveyed countries. Among these employees, 13-36% reported having no access to confidential information. 14-32% were low-paid workers. This suggests that the traditional justification for using non-compete agreements to protect trade secrets may not apply to some employees in Japan.
The use of restrictive covenants in employment contracts may be increasingly prevalent in Japan, as firms reporting an increase outnumbered those reporting a decrease in the OECD employer survey. Alarmingly, two-thirds of surveyed Japanese firms reported knowledge of either no-poaching, wage-fixing or both in their industry, compared with an average of 48%.
The Competition Policy Research Center’s 2018 report on human resources and competition policy examined the application of the Antimonopoly Act to competition for acquiring human resources. The report states that joint arrangements made between contracting parties (employers) regarding remuneration paid for services, or restricting transfers or job switching, may prevent and avoid competition and may give rise to issues under the Antimonopoly Act.
Employment protection legislation shapes job security, labour market dualism and firms’ ability to adjust to economic fluctuations and structural change. Updated OECD indicators show large cross-country differences in dismissal regulations and notably restrictions on temporary contracts.
Japan’s employment protection legislation (EPL) strictness for regular workers is just below the OECD average, which has remained stable since 2019. Japan’s score has also remained stable, with no major change to dismissal protection implemented over this period.
For temporary contract workers, Japan’s EPL score remains below the OECD average but increased between 2019 and 2025. This mainly reflects the strengthening of equal-treatment requirements for agency workers introduced in 2020, which require equal treatment in both pay and non-monetary working conditions. More recently, employers have also been required to specify any upper limit on the duration or number of renewals of fixed-term contracts, increasing transparency and predictability for temporary workers.
Policy efforts are underway to improve the safety-net coverage of workers. At present, eligibility for employment insurance requires a minimum of 20 hours of scheduled weekly working time, but this threshold is planned to be lowered to 10 hours from October 2028. In addition, social insurance – including healthcare and pension coverage – will gradually extend to part-time workers by 2035. These changes are expected to broaden coverage of the safety net.
Contact
Akiei JIBIKI (✉ akiei.jibiki@oecd.org)
Glenda QUINTINI (✉ glenda.quintini@oecd.org)
This work is issued under the responsibility of the Secretary-General of the OECD, and does not necessarily reflect the official views of OECD Member countries.
This document, as well as any data and map included herein, are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.
The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.
Note by the Republic of Türkiye
The information in this document with reference to “Cyprus” relates to the southern part of the Island. There is no single authority representing both Turkish and Greek Cypriot people on the Island. Türkiye recognises the Turkish Republic of Northern Cyprus (TRNC). Until a lasting and equitable solution is found within the context of the United Nations, Türkiye shall preserve its position concerning the “Cyprus issue”.
Note by all the European Union Member States of the OECD and the European Union
The Republic of Cyprus is recognised by all members of the United Nations with the exception of Türkiye. The information in this document relates to the area under the effective control of the Government of the Republic of Cyprus.
The full book is available in English: OECD (2026), OECD Employment Outlook 2026: Geographic Disparities in Jobs and Incomes, OECD Publishing, Paris, https://doi.org/10.1787/7e710f54-en.
© OECD 2026
Attribution 4.0 International (CC BY 4.0)
This work is made available under the Creative Commons Attribution 4.0 International licence. By using this work, you accept to be bound by the terms of this licence (https://creativecommons.org/licenses/by/4.0/).
Attribution – you must cite the work.
Translations – you must cite the original work, identify changes to the original and add the following text: In the event of any discrepancy between the original work and the translation, only the text of original work should be considered valid.
Adaptations – you must cite the original work and add the following text: This is an adaptation of an original work by the OECD. The opinions expressed and arguments employed in this adaptation should not be reported as representing the official views of the OECD or of its Member countries.
Third-party material – the licence does not apply to third-party material in the work. If using such material, you are responsible for obtaining permission from the third party and for any claims of infringement.
You must not use the OECD logo, visual identity or cover image without express permission or suggest the OECD endorses your use of the work.
Any dispute arising under this licence shall be settled by arbitration in accordance with the Permanent Court of Arbitration (PCA) Arbitration Rules 2012. The seat of arbitration shall be Paris (France). The number of arbitrators shall be one.