Japan's severe labor shortage is at levels last seen about a quarter-century ago, states a government white paper presented to the Cabinet on Friday which also highlights the country's need to resolve the issue in order to achieve sustainable economic growth.

The economy looks to be in its third-longest expansion phase on record, but consumption remains weak because wage growth is tepid despite tight labor market conditions, according to the paper on the economy and finances for fiscal 2017.

As productivity in Japan still remains lower than in other major developed economies, the government may consider promoting labor reform - cutting long work hours and eliminating unjustifiable discrimination between regular and nonregular workers. It may also push for advanced technology such as artificial intelligence.

The paper, presented to the Cabinet on Friday, acknowledges that more women and elderly people - who tend to prefer working relatively short hours - have joined the workforce. Overall labor remains in short supply, however.

The unemployment rate fell below the 3 percent mark in February for the first time since 1994, while job availability has been at the best level in over four decades as companies hunt for workers.

However, such improvements have yet to translate into strong wage growth for workers, prompting the government to describe the situation as a "new phenomenon." The white paper stated that companies, mindful of future economic and other risks, appear to be dragging their feet.