Many economists say this discourages corporate expansion because employers fear they will be stuck with excess labor in a recession.
No longer needed for the production of food, excess labor is moved into these factories where mechanization is utilized to further increase efficiency.
Some industry analysts have criticized the agreement for making it more difficult for the company to trim excess labor.
Though there is too much paper-pushing at Japanese banks, excess labor may not be a big problem.
Development of foreign trade and exports helped absorb excess labor from the decreased importance of agriculture in the economy.
"All of the sudden, the entire industry appears to have excess labor," Professor Kedia said.
Conversely, some governments view informality as a benefit, enabling excess labor to be absorbed, mitigating unemployment issues.
At current growth rates, we should exhaust the supply of excess labor by mid-year.
It's a bizzaro 1984-ish situation where we are effectively wasting excess labor we have no use for.
"Some slowdown in growth, therefore, appears to be inevitable as the existing industrial capacity and pool of excess labor are exhausted."