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Abe labor reforms may boost Japan's 'disposable' workers, crimp wages

Job seekers listen to presentations by company employees during a job fair held for fresh graduates in Tokyo December 7, 2013. REUTERS/Yuya Shino

By Tetsushi Kajimoto

TOKYO (Reuters) - Yumiko Kajiwara is a cheerful 46-year-old who has had several part-time jobs, including sorting clothes, cosmetics and cellphone parts at a Tokyo warehouse. She also represents a challenge to Prime Minister Shinzo Abe.

Kajiwara is part of a big and growing pool of part-time, temporary and other "non-regular" workers left out of the stability and security of Japan's storied lifetime employment system.

After losing a steady job two decades ago when the small electronics firm she worked for went bust, she says she has "job-hopped from workplace to workplace, having to take jobs as a temp, part-timer or contract worker at best."

"All the while, I've wanted to become a regular employee, but I couldn't afford to choose jobs as daily living takes priority."

Abe, in office a year, has found little traction so far with plans to unclog Japan's sclerotic labor market. But now his government wants to ease rules, which could make it easier for companies to replace regular "salarymen" with temporary contracted workers.

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

But this would 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 "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 Abe, a few big-name companies such as Toyota Motor Corp <7203.T> and convenience store chain Lawson Inc <2651.T> have suggested they may raise base pay - not just bonuses, which can easily be reversed if the economy falters.

But these isolated cases won't reverse the years of decline in Japan's overall wages, especially if it becomes easier for companies to replace salarymen with temps or contract workers, who have no job security and little or no benefits.

"Depending heavily on low-paid and unskilled temporary workers could backfire on corporate competitiveness and jeopardize the ultimate Abenomics goal of sustained economic growth," said Hisashi Yamada, chief economist at the Japan Research Institute.

The lifetime employment system, in which workers put in grueling 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 unraveling since the nation's asset bubble burst in the early 1990s.

The number of non-regular workers has jumped 57 percent since 1997 to 18.13 million last year, more than a third of the labor force. The number of regular employees has fallen 12 percent to 33.4 million, government data show.

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 13 percent since the 1997 peak to 4.08 million yen ($39,700), with non-regulars averaging just 1.68 million yen.

The widening "labor market duality" hurts 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 irregulars 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.

"I'm tired of living in fear and anxiety," said Kajiwara, who told Reuters she is struggling to make ends meet on annual pay of about 1.5 million yen, barely a third of the national average. She has recently bounced through a full-time job as a receptionist at a catering firm, handling banquet reservations at a big real estate company, and a part-time job at a recreational facility for the elderly.

In some jobs she had to work overtime for no extra pay, while elsewhere she was not covered by social security.

"All I want is security in my livelihood. I'd like to marry one day but my priority now is to find a fixed job," Kajiwara said, adding she would not want to marry a non-regular worker like herself. Abe's push for higher wages, she says, sounds like "nothing but fantasy."


The prime minister, who is seeking to reverse some labor-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. Those changes accelerated the job market divide.

Abe has had to drop or has struggled with some labor proposals, 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 - which can be eliminated by employers.

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

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

Although labor unions voice concerns, the labor 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," said economist Yamada.

For Katsura Sakai, 42, who has been looking for work since being laid off by a food delivery company in March, Abe's plans hold little promise of a better life.

"In this society once you become a temp you will be a temp forever - I think labor deregulation will only accelerate such a trend," said Sakai, who lives with her pensioner mother and was just making ends meet on 2 million yen a year before losing her job.

"If you're a temp and think about your old age, the future looks increasingly grim. To me, the aim of labor reform is to destroy job security."

(Editing by William Mallard and Ian Geoghegan)