The Organisation for Economic Co-operation and Development on Thursday called for Japan to promote labor reforms by imposing a binding cap on overtime work and removing obstacles to women’s employment because its job market is tight.
Wage growth remains “surprisingly muted” despite labor shortages, the OECD said in its report, adding that the pace of wage growth is a short-term uncertainty for the Japanese economy, which is expected to grow 1.2 percent in 2017.
The Paris-based organization also pointed out that Japan has a large gender gap in employment, even as women’s participation in the workforce has increased. It called for raising child care capacity, reforming the tax and benefit systems, and improving work-life balance.
“The government should introduce a binding ceiling on overtime hours,” the OECD said in its economic survey report on Japan.
Prime Minister Shinzo Abe is spearheading labor reforms to rein in the nation’s notoriously long working hours by pushing for legislation that would cap overtime and ensure equal treatment for regular and nonregular workers. A related bill is not expected until autumn.
“While growth has picked up, more needs to be done for Japan to overcome two key challenges — a record-high government debt ratio and an accelerating decline in the working age population,” the report said.
Japan has a series of challenges. Labor productivity remains significantly below the top half of OECD countries, and the productivity gap between the manufacturing and services sectors has widened.
To restore its fiscal health, the worst among major developed countries, the OECD said Japan should commit to “a more detailed medium-term fiscal consolidation path with specific spending cuts and tax increases.”
Japan has put off a sales tax hike to 10 percent from the current 8 percent until October 2019 after the previous rise dampened consumption.
At a news conference in Tokyo, OECD Secretary-General Angel Gurria supported another consumption tax because Japan’s tax rate is still lower than in other OECD countries.
“There is room (for further hikes) in the case of Japan,” Gurria said, adding that the consumption tax could be raised above 15 percent. He floated the idea of gradually raising the sales tax, by 1 percent every year for instance, so the economy can deal with the impact.
The graying of Japan’s society has made securing stable revenue to cover ballooning social security costs an imperative. The Abe administration is attempting to oversee fiscal reconstruction and economic growth at the same time.
The economy has benefited from recovering exports, mainly to other parts of Asia, although economists say uncertainty about the economic and trade policies of the new U.S. administration pose a risk.
U.S. President Donald Trump pulled the United States out of the Trans-Pacific Partnership deal, which delivered a setback to Abe, who had hoped the free trade agreement would become a key growth driver and represent actual progress on his promises of structural reform.
“What is lost is, of course, U.S. participation, not necessarily the participation of all the other countries,” Gurria said. He called for continued efforts to launch the TPP, which he described as “positive” for growth.
In the biennial report, the OECD said monetary easing by the Bank of Japan should be maintained until inflation is “durably” above the 2 percent target while taking associated costs and risks into account.
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