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Japan – Abenomics may create more ‘disposable’ workers

19 December 2013

Japan’s Prime Minister Shinzo Abe continues to struggle with his plans to unclog Japan's sclerotic labour market. His government now wants to ease rules, which could make it easier for companies to replace regular workers (salarymen) with temporary contracted workers, reports Reuters.

Businesses and many economists say a freer flow of labour, where easier firing allows easier hiring, would make for more robust and durable growth, one of Mr Abe's main goals for the world's third-biggest economy.

However, there are fears that this could also likely accelerate the growth of what some call the ‘disposable’ workforce at the expense of regular salaried workers. That in turn runs directly counter to the main aim of so-called ‘Abenomics’. Breaking 15 years of deflation by creating a virtual circle of rising wages, consumer spending and prices.

As the ranks of the irregulars grow and salaried workers dwindle, the trend is pushing down overall wages. Under direct pressure from Mr Abe, a few big-name companies; such as Toyota Motor Corp and convenience store chain Lawson Inc. have suggested they may raise base pay, not just bonuses, which can easily be reversed if the economy falters.

These isolated cases are unlikely to reverse the years of decline in Japan's overall wages, especially if it becomes easier for companies to replace ‘salarymen’ with temporary or contract workers, who have no job security and little or no benefits.

Hisashi Yamada, Chief Economist at the Japan Research Institute, said: "Depending heavily on low-paid and unskilled temporary workers could backfire on corporate competitiveness and jeopardise the ultimate Abenomics’ goal of sustained economic growth.”

The lifetime employment system, in which workers put in gruelling hours in return for secure jobs until retirement, was a cornerstone of Japan's astonishing rise from the ashes of World War Two, to become a great economic power. But this social compact has been unravelling since the nation's asset bubble burst in the early 1990s.

The number of non-regular workers has jumped +57% since 1997 to 18.13 million last year, more than a third of the labour force. The number of regular employees has fallen by -12% to 33.4 million, government data shows.

During the years of deflation, many employees were happy just to be employed, and unions accepted pay cuts in return for letting salaried workers keep their jobs. Japan's average annual pay has dropped by -13% since the 1997 peak to JPY 4.08 million (USD 39,700), with non-regulars averaging just JPY 1.68 million (USD 16,310).

The widening labour market duality negatively impacts on the economy by reducing productivity, as non-regular workers have less incentive to work hard and less access to training, International Monetary Fund economists said in a recent working paper. Indirectly, they said, the gap also reduces "consensus in society for growth-enhancing structural reforms."

Many of the non-regular workers are students, young adults, and people who shun the strict rules and long hours of the salaryman. But increasingly, people are taking non-regular work because they can find nothing better and must support themselves as best they can. Two-thirds of the non-regular workers are women.

The prime minister, who is seeking to reverse some labour-market restrictions imposed by the party he defeated a year ago, wants to extend the workplace deregulation pursued by his mentor, former premier Junichiro Koizumi. Changes, Mr Abe believes, accelerated the job market divide.

Mr Abe has had to concede on some of his labour proposals and struggled to enact others, such as exempting proposed special economic zones from Japan's tough rules on laying off workers, and creating an in-between category of workers, treated as regular workers but only for specific jobs that can be eliminated by employers.

Last week, a government panel proposed a measure that could essentially let companies displace regular workers with temporary workers.

Currently a company can employ a worker dispatched from a temporary agency for three years at most at a given workplace, with exceptions such as for 26 specific categories. The proposed change would let companies roll over all temporary contracts indefinitely.

Although labour unions voice concerns, the labour ministry aims to craft a final proposal by year's end to submit legislation to the regular session of parliament starting in January. The proposed rule could mean "full-time employees may be replaced with poorly treated temps," warned economist Yamada.

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