The high cost of cheap labor

The recent revelation of extremely severe conditions for workers at Sukiya should not be dismissed as an isolated case at the popular beef-bowl chain that rapidly expanded over a short period. Employers should view the case as a cautionary tale against pursuing maximum business efficiency through the minimization of manpower costs, and remind themselves of the importance of treating employees as key stakeholders in their business and of observing labor regulations.

The case of Sukiya, the nation’s largest “gyudon” chain, attracted widespread public attention earlier this year when a mass exodus of workers forced the firm to temporarily shut down up to 10 percent of its roughly 2,000 outlets across the country. A third-party panel, appointed by the parent holding company of operator Zensho Co. to look into the work environment at the chain, said in late July that the chain had in fact suffered from chronic labor shortage for years — resulting in an excessively heavy workload on its staff.

Zensho Holdings Co. later announced that the mass closure of the outlets would force the group to report its first-ever loss in the year to March 2015. The company also said that by the end of September Sukiya will stop the practice of having only one employee run the graveyard shift at each outlet — a practice that symbolized the chain’s business model of achieving low-cost operation by utilizing minimal staffing based on a strict calculation of sales per manpower input.

According to the report by the third-party panel, Sukiya has for some time faced a situation in which about the same number of employees quit each year as the company hires. As the chain opened a total of about 400 new outlets since 2011, its operation became obviously impossible without imposing excessive burden on its workers.

As a result, workers chronically faced “extraordinarily long” working hours, which habitually included 24-hour shifts and some employees worked as many as 500 hours a month. The result was a negative spiral in which a growing number of resignations of worn-out employees increased the workload on remaining staff, the panel said.

While Sukiya was aware of the severe toll that the heavy workload was having on its employee’s physical and mental health due to worker surveys and reports on resigning employees, top management failed to take company-wide measures to correct the situation because it lacked of sense of crisis regarding the well-being of workers, the report said.

Instead, management put priority on the satisfaction of Sukiya customers as it strived at all costs to keep its outlets open 24-7-365, but it failed to treat its workers as an indispensable stakeholder in its business operation, the panel said.

Some of the problems highlighted in the case may be specific to Sukiya. But many other companies — especially in the fast-food and retail industries — have for years relied on cheap labor to provide services and products at a low cost to survive the competition under the economy’s deflationary trend. They need to reflect on their own practices and consider whether they have treated their employees sufficiently well in their pursuit of business efficiency.

According to a Health, Labor and Welfare Ministry probe last year of 5,111 businesses that were suspected of abusing young workers, 82 percent of the firms were found to have violated labor rules, such as having employees to work long hours beyond the limits set in agreements with the workers’ unions, as well as failure to pay overtime allowances.

About 700 of them were having some employees to work more than 100 hours of overtime a month — a criteria used in deciding whether employees’ deaths are due to overwork. The ratio of businesses found to have violated labor regulations was the highest in the food and drinks service sector at 87.9 percent.

Since the 1990s, Japanese firms have increasingly relied on lower-paid irregular workers such as part-timers, who have come to account for nearly 40 percent of the nation’s employed workforce today. Even as the labor market tightens amid the ongoing economic uptrend, many companies still try to fill their manpower needs by tapping the irregular workforce.

Chronically long working hours remain a problem for many corporate workers. Deaths and suicides of overworked company employees continue to be such a serious issue that the Diet recently enacted a law to prevent death by overwork, which requires the government to take necessary action. Each year, more than 300 people hit by heart and brain maladies are recognized as victims of work-related illnesses.

According to the health ministry, the number of deaths from work-related accidents between January and June rose 19.4 percent from a year ago to 437. Many of these accidents took place in such sectors as construction, retail and food services, where the recent tight labor demand is said to have led to severe manpower shortages.

Manpower shortages are reported to have sharply pushed up wages in these sectors, raising doubts about the sustainability of business models based on low-cost labor. But aside from cost factors, employers should realize that business practices that do not heed the welfare of workers not only are unethical but also will fail in the long run.

  • Paul Johnny Lynn

    This situation can only be changed if the responsible government department is given sufficient “teeth” to use on these modern day slavers. Those “teeth” then need to be used whenever and wherever they are required; no favouritism, no cronyism. Businesses do this because, generally speaking, they have nothing to fear.

  • Peter

    This is a very serious problem in the country. But there is one major distraction. 500 hours in one month? That would require 16 hours per day for 31 days straight. I simply cannot believe a person did that many hours.