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Japan should crack down on excessive unpaid overtime in order to boost productivity, as the nation’s irreversible labor shortage means companies must streamline to cope with fewer people, according to Goldman Sachs Group Inc. chief Japan economist.

“A small portion of overtime goes into the pay slip and I think the government should put a greater focus on unpaid overtime,” Naohiko Baba said in an interview Wednesday. “When you crack down on unpaid overtime and shift the focus to work-and-life balance, it will make it easier for people to enjoy leisure hours and spend their money.”

The government is seeking to raise labor productivity to help cope with a shrinking population, and limiting overtime is part of that. That was brought into sharp focus after the suicide of an employee of the nation’s largest ad agency in 2015, but the extent of the problem is partly hidden.

The government is asking companies to limit overtime hours to a maximum 45 hours a month as part of its work-style reforms. That’s about four times the amount of official paid overtime that workers do, according to the labor ministry. So setting a high limit may not force companies to change, unless it can be applied to unpaid, unofficial overtime as well.

Japanese workers on average put in about 200 hours of unpaid overtime annually, estimates Baba, a former official at the Bank of Japan. By comparing two sets of government data, one which showed how much companies paid in overtime and one where workers reported their total working hours, Baba’s calculation shows that people work longer than their paychecks reflect.

That worked out to about ¥440,000 in unpaid wages in 2016 for the average worker, according to Bloomberg calculations based on the monthly wages data.

And the problem is widespread, although the labor shortage is forcing some companies to improve conditions.

Express delivery company Yamato Holdings Co. this year said it will retroactively pay employees ¥19 billion for unpaid overtime, as well as raising its base service rate for the first time in 27 years.

The issue of unpaid overtime is probably worse among service businesses, whose productivity is lower than manufacturers that are exposed to global competition, Baba said. Smaller service companies are lagging behind in incorporating information technology to streamline their operations and save on manpower, and the government can help them by providing information on what technology and services are available and how to finance that, he said.

The ultimate onus is on companies to find a way to survive in an era when fewer hands are available, according to Baba.

“It’s about time for them to decide,” he said. “After baby boomers retire, they can make it up with female workers, but there’s no guarantee they can do so forever. So, they have to think about what they can do to stay in business in Japan.”

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