Japan needs a more flexible and diverse labor market as its population ages rapidly and starts to decline, experts told a recent symposium in Tokyo.
Employment practices that worked during the nation’s dynamic postwar growth are no longer sustainable and are even hurting its competitiveness today, some of the participants said.
Japanese and German scholars, and business executives took part in the June 17 symposium jointly organized by the Keizai Koho Center, Japanese-German Center Berlin and Institut der deutschen Wirtschaft Koln under the theme, “Global economic crisis and sociopolitical challenges.” Andreas Moerke, representative director and president of Messe Dusseldorf Japan, served as moderator of discussions.
The impact on labor markets of the global crisis since last fall has so far differed widely across countries, with wages not falling among OECD economies — with the exception of Japan — and even rising sharply in the United States and Germany, said Herbert Bruecker, a professor at the University of Bamberg, Germany.
Employment has remained relatively stable in Germany and Japan, which have suffered sharp falls in gross domestic product as their exports were hit hard by the crisis, said Bruecker, also head of the department for international comparisons at the Institute for Employment Research. It is only in the U.S., Britain and some Scandinavian countries that decline in industrial output has matched the fall in employment, the professor noted.
In most countries, the effects on the labor market are lagging behind developments in terms of real GDP, said Rolf Kroker, managing director of the Institut der deutschen Wirtschaft Koln, adding that a severe increase in unemployment is feared in Germany in the coming months and that “only a speedy recovery can prevent the worst.”
In Japan, the unemployment rate, which hit 5.2 percent in May, is forecast to top 5.5 percent, the worst-ever rate recorded in 2002 and 2003, said Shoichiro Suzuki, Oji Paper Co. chairman and chairman of the Employment Committee of the Japan Business Federation (Nippon Keidanren).
Since the beginning of the year, Nippon Keidanren has reached a series of agreements with the Japanese Trade Union Confederation (Rengo) to advocate business-labor cooperation backed by the government to pursue job security, Suzuki said. A joint statement issued in March urged employers to retain redundant workers through work-sharing efforts, production adjustments, relocation and training of workers, and cuts to overtime, he noted.
Keidanren and Rengo reached an agreement with the government also in March so that such efforts would be supported by expanded government subsidies to companies that do not lay off or dismiss redundant employees through cuts to hours and workdays, Suzuki said. The number of applications for the subsidies has sharply increased to cover roughly 2.53 million workers and it is estimated that the measure has contributed to keeping the unemployment rate lower by 0.9 percentage points, he added.
Given that the current global economic woes are expected to continue for an extended period, however, Japan needs to make longer-term efforts to relocate workers to sectors that have manpower shortages and create new businesses that can absorb the unemployed, Suzuki said.
And the changing environment in Japan’s labor market, ranging from the rapidly aging population and falling birthrate to an increasing shift toward service industries and intensifying global competition, requires more diversity in the ways people work to enable greater participation of women and the elderly in the labor force, he told the audience.
The falling birthrate and aging population pose serious socioeconomic challenges to Japan and Germany, and while the accelerating pace of these problems in Japan requires speedy tax and social security reforms, policy actions are instead slowing down, said Naohiro Yashiro, an International Christian University professor.
Japan’s economic growth rate is continuously declining and the current recession may extend the “lost decade” of the 1990s into the “lost three decades,” Yashiro noted. And many of the problems come from the fact that Japan is trying to maintain the social systems and labor practices established during the postwar rapid growth period — even though circumstances have since dramatically changed, he added.
“It is entirely wrong to think that the various problems in the labor market are the result of structural reforms or deregulation. Rather, labor market conditions are worsening as a result of the failure to deal with the changing environment,” Yashiro said.
While Japan’s employment practices have undergone some changes, they are still essentially based on long-term employment and a seniority-based wage system, the professor said. “It is the legacy of the days of rapid economic growth, when large numbers of the younger-generation supported the smaller number of elderly people,” he said.
The gap between regular and nonregular workers — who are excluded from such employment practices — has become a serious issue as the ratio of nonregular workers has rapidly increased since the 1990s. “The biggest problem in Japan’s labor market is this dual structure, in which nonregular workers on fixed-term contracts and market-based pay serve as the buffer for the job security of regular workers on indefinite-term contracts and seniority-based wages,” Yashiro said.
The number of nonregular workers has reached 17 million, accounting for roughly one-third of the nation’s workforce. However, it would be wrong to try to include them in conventional Japanese employment practices and efforts should instead be made to review the employment practices for regular workers, the professor said.
Kazuhiko Toyama, CEO of the management advisory firm Industrial Growth Platform Inc. and formerly chief operating officer of the semipublic Industrial Revitalization Corp. of Japan, also said it would be impossible to maintain the current system — based on lifetime employment and seniority pay — with a population structure where people aged 65 or older are estimated to account for 40 percent of the total in 2050.
“That would mean one employee each being assigned to work under two or three superiors. That would be impossible,” Toyama said.
The current employment practices apparently encourage the so-called “standard” model of household structure often mentioned in social security calculations — in which the husband works at a big company on seniority-based pay, the wife is not employed and the couple has two children — and discourage other models, he noted.
And the system is essentially inconsistent with the trend of more women getting higher education and joining the labor market because many married women are confronted with the choice of whether to have children or keep working, said Yashiro of International Christian University.
In this sense, the prevailing employment practices at Japanese firms are closely linked to the issue of the declining birthrate, and changing the practices to create a more flexible labor market free of age and gender considerations will serve two purposes — to ensure a sufficient supply of workers amid the declining ranks of the younger generation and to halt further decline in the birthrate, the professor said.
In the past, those employment practices contributed to producing a highly skilled workforce, Yashiro said. But today they are not only unfair, they are inefficient and hurt the nation’s competitiveness because they fail to make full use of the potential of female workers — as well as elderly people who are hired as nonregular workers after they have passed the mandatory retirement age, he said.