Can Japan, land of lifetime employment, handle the rise of freelancers?

by Shusuke Murai

Staff Writer

For public relations specialist Mari Hirata, the perks that drew her into the world of freelancing were the flexible working hours and the opportunity to work for various companies.

When she started freelancing in 2011, Hirata had just given birth. But now that her kids are a little older, she has begun to increase her workload. She is currently working for four different startups as a public relations specialist.

“Being a freelancer allows you to control the amount of work you do. If you want to earn money, it’s up to you to work as much as you want,” Hirata, 34, said. “Some people can earn even more money after they become a freelancer.”

The rise of freelancing represents a significant shift from Japan’s traditional lifetime employment system. After serving as the main pillar of the postwar labor system for decades, lifetime employment has virtually collapsed amid the multiple recessions brought on by the bubble economy’s implosion in the early 1990s and the 2008 global financial crisis.

In the aftermath, freelancing has become an attractive option for some workers. But those interviewed by the Japan Times say that life outside the company is not as rosy as it seems, and that Japanese society is ill-equipped to deal with their arrival.

According to crowdsourcing firm Lancers Inc., Japan had about 11.22 million freelancers aged between 20 and 69 as of February, up about 5 percent from a year ago. That’s 17 percent of the nation’s working population.

Freelancers include company employees who moonlight, “parallel workers” commissioned by multiple companies, and other self-employed individuals.

But the uptrend is not limited to Japan.

According to a 2016 report by Upwork Global Inc., a U.S.-based crowdsourcing firm, 55 million people — or 35 percent of all American workers — are involved in freelancing, up 2 million from 2014. The Freelancers Union predicts they will make up 50 percent of the workforce by 2020.

In Japan, Prime Minister Shinzo Abe and his administration are backing this shift.

In March, a government labor reform panel released a report calling for “flexible work styles” and the promotion of moonlighting, which many companies ban.

And the Health, Labor and Welfare Ministry is expected to revise its guidelines on telecommuting, which would include freelancers, by the end of March 2018.

“It’s antithesis of traditional Japanese working culture,” said an official in charge of the issue at the Ministry of Economy, Trade and Industry who declined to be named due to ministry policy.

During Japan’s rapid growth spurt in the 1960s and 1970s, workers enjoyed the job security afforded by lifetime employment and seniority-based pay hikes in exchange for their devotion to the company, which meant long working hours.

But as Japan sank into the economic doldrums in the 1990s and beyond, companies found they could no longer afford to maintain the rigid system.

“Lifetime security has become a thing of the past,” the METI official said.

Companies are now required to streamline to maintain productivity with limited resources, he said, adding that the first step these days is to evaluate workers’ contributions based on performance, not hours put in.

“As the population declines, companies have no choice but to pursue more productivity by breaking down their tasks and, in some areas, outsourcing their work effectively to become sustainable,” he said.

Using freelancers can help in many cases by offering “open innovation.”

Under this concept, new ideas at the company are developed using the knowledge and experience provided by outside resources, the official said.

“Innovation brought about merely by internal resources has reached its limit, and I think that’s happening everywhere in Japan,” he said, adding that freelancers give small and midsize companies a less expensive way to hire talent than actually adding them to the payroll.

This would appear to paint a bright future for freelancers, but many say there are larger consequences to consider before jumping in.

“If you are not a company employee, everyone in society, particularly financial institutions, views you as having virtually zero credibility,” Hirata said.

Banks often turn down freelancers for mortgages and loans, and companies tend to shy away from hiring former freelancers as regular employees, because they think they aren’t credible, she said.

The lack of social security, including unemployment benefits and sick leave, is also a problem.

Because freelancers cannot make use of the social insurance schemes most corporate workers enjoy, many have to rely on the national health insurance system, which only provides minimum coverage, she said.

Mothers like Hirata may also face difficulty finding public day care for their children because the municipalities who screen them often give priority to corporate workers, she said.

“Freelancers are still regarded as inferior to corporate workers. People don’t see us as established professionals,” Hirata said.

Others complain that companies only view freelancers as a source of cheap labor to exploit.

Some try to reduce their compensation, for example, by outsourcing assignments via subcontractors and receive kickbacks as a sort of commission, said Yasuyuki Kawabata, CEO of Tokyo-based IT venture Branding Engineer.

In one case, ¥1.2 million in compensation that was supposed to be paid to a freelance computer engineer was reduced to ¥350,000 because commissions were siphoned off by seven companies in between, said Kawabata, who used to work as a freelance programmer before cofounding his own company in 2013.

Such disguised subcontracting is illegal, but the practice is still rife, particularly in the IT industry, Kawabata said.

Freelance programmer Tetsuhiro Namekawa, 37, meanwhile, complains that companies who hire people like him don’t offer comfortable working environments.

Namekawa, who worked in IT for 10 years before going freelance, said he found the lack of training opportunities distressing.

“I always feel anxious about my future. As many new technologies emerge, I’m worried that someday I won’t be able to catch up with fast change,” he said. “I sometimes miss my easy life as a company worker.”

Despite the government’s effort to promote freelancing, an expert warns that the trend won’t grow without a sufficient safety net to compensate for the weak job security.

Yoshio Higuchi, a professor of labor economics at Keio University in Tokyo, said that unless the government drafts legislation to protect freelancers, it may end up just creating another group of workers with unstable job security.

After the global financial crisis unfolded in 2008, tens of thousands of workers dispatched by temporary agencies were let go as a cost-cutting measure, sometimes en masse.

“Becoming a freelancer sounds appealing. But like furita (young, serial part-time workers) who were once touted for their flexible working style, it may be just yet another word for vulnerable nonregular workers,” Higuchi said.

Without legal protections, some exploitative companies might trick freelancers into working excessively long hours for less money than regular employees.

This because there is no law to regulate overtime hours for freelancers, who aren’t subject to the Labor Standard Law if they don’t have formal employment relations with their employers. The minimum hourly wage doesn’t apply to them either.

While setting a minimum wage would provide some security, in reality it is difficult to set a unified base pay because their contribution varies depending on the kind of work and their skill level, Higuchi said.

To reduce their risks, Hirata, the PR specialist, has cofounded the Japan Freelance Association to provide support and to lobby the government to provide legal frameworks for the self-employed.

The JFA is also working on developing a social safety net.

In April, the association said it would team up with Sompo Japan Nipponkoa Insurance to offer liability insurance from July for freelancers and parallel workers who have paid the JFA’s ¥10,000 annual membership fee. Members can also buy disability insurance to ensure they have income when they can’t work.

Pros and cons aside, Hirata knows freelancing is not for everyone.

“The most important thing is to offer options for all people,” Hirata said.

“Japan is not an easy place for people who want a new challenge. . . . But I hope that society will become a bit more flexible to allow people to choose their preferred work styles more easily.”