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Around the Web – Japan’s polarised labour market

22 November 2013

International legal practice Squire Sanders had an interesting take on temporary work in Japan. In an article written by Chiharu Yamamoto, she stated that the increasing use of temporary employment in Japan has polarised the labour market.

Writing for online legal publication Lexology, Ms Yamamoto explains that the traditional Japanese labour market model, based on the principle of a ‘job for life’, was impacted in the mid-1990s by a large scale economic recession resulting in a significant change to the labour market. Japanese recruitment firm Pasona provided an excellent summary of the relevant laws, which we have attached below.  

Japanese companies have streamlined their employment structures, leading to lower permanent employment levels among new graduates. Japanese companies have covered their labour needs instead by increasing the number of staff in temporary or non-standard employment such as agency workers, part-timers and fixed term employees. In Japan, the pre-conditions to a dismissal by reason of reorganisation are very strict, and companies cannot dismiss easily without reasonable excuse.

Therefore Japanese employers have been increasingly reluctant to hire permanent or regular employees. Even after the economic rebound of the last year, they have continued to make regular employees work late rather than hire more of them, and to use temporary resource such as fixed term employees and agency workers to make up the difference.   

The number of temporary or agency employees has been increasing yearly. In 2012, the percentage of such staff reached a new high of 38.2%. Meaning that four out of ten of the Japanese workforce are now temporary or agency employees. More than half of the female working population (52.9%) are non-permanent, but less than one in five for men (17.9%).

One of the key factors behind this increase in the use of temporary staff and perhaps also the gender split was the easing of regulations covering the employment agency business. In the past, agency working was broadly limited to 26 specific categories of business including software development, secretarial, interpreting, translation and filing. In 1999, the Worker Dispatch Law was amended, and the categories of work permitted were liberalised.

In addition to that, in March 2004, the manufacturing sector became able to use agency staff to supplement the employed workforce. As a result, the number of agencies and supplied workers has rapidly increased in recent years, and there is no sign of this trend stopping.

As to why companies have increased their use of temporary workers, more than 80% point to labour cost savings. The costs of hiring, dismissal, training, and social insurance for regular workers is high. Temporary employment does not require such high fixed costs, so companies have shifted away from the traditional pattern of regular employment to temporary engagements where the fixed costs are lower. Flexibility to respond to fluctuating demand is also a material driver.

But that is not the whole story. With the diversification of life styles and individual values, more young people have consciously chosen the temporary employment model in order to achieve a proper work life balance, because these working arrangements are relatively free and temporary employment is more flexible. Not for them the historic “salaryman” career, progressing slowly up the ranks of a single company for the whole of their working life. But this flexibility and freedom can come at a price – the average salary of regular workers is JPY 3,170,000 (USD 31,488) and the average salary of temporary workers is JPY 1,964,000 (USD 19,508). In other words, the salary of temporary workers is less than two-thirds of that of regular workers.

This may well reflect that most senior jobs are still held by regular employees and that many roles for which agency workers are used are at a relatively low-level. Moreover, the number of temporary workers whose working time is almost the same as regular workers has been increasing as employers seek to take advantage of their relatively low cost to do what are really permanent employee roles.  This has undermined some of the notional work life balance benefits and has created a new phenomenon for Japan, the growth of the ‘working poor’.

For the full article, please click here.

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