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Japan’s labor reform ignores elementary principles

by Philip Brasor

Contributing Writer

Earlier this month, the Finance Ministry reported that the labor share in the final quarter of calendar year 2017 for companies with capital of more than ¥1 billion was 43.9 percent. That basically means 43.9 percent of these companies’ income went to employees. The Nihon Keizai Shimbun described this portion as being “still stagnant,” implying that Japanese corporations are not paying their workers enough, especially given that they hold a record ¥400 trillion in retained earnings — money that isn’t being used for anything. (In contrast, the labor share for small and medium-sized companies is 70.1 percent.) Corporations aren’t spending this cash because they are afraid demand will continue to deteriorate and that if they increased pay, it would be difficult to decrease it if business went bad. But if workers aren’t being paid enough, they are going to be more reluctant to spend, thus reducing demand and realizing their employers’ fears.

This elementary economic principle hasn’t been mentioned in the public debate about the ruling Liberal Democratic Party’s proposed series of labor reform bills, but it’s at the heart of people’s concerns about their possible passage. The government, at the behest of the Japan Business Federation (Keidanren), wants to raise productivity in order to make Japan more globally competitive. It also wants to solve (or, at least, be seen as trying to solve) the problem of excessive overtime, which has led to the well-reported dangers of karōshi (death from overwork). In the face of labor shortages, companies want laws that reduce their obligation to pay overtime, while workers are afraid that limiting it will reduce their wages, since in many cases they have come to expect overtime, not as the occasional compensation for extra work, but rather as an essential part of their livelihood.

Workers are opposed to two of the bills that deal directly with overtime. One would expand the scope of the existing discretionary labor system, where employees are paid for hours it is presumed they will work rather than the actual hours they work, the upshot being that this presumed overtime is part of their base pay. The other related bill is “ko-puro” (a portmanteau of “kōdo purofesshonaru,” or “advanced professional”) reform, a new system that would eliminate overtime regulations for “highly professional” workers in certain fields such as journalism and securities investment. These bills would only affect workers who make above average salaries, but years ago when Keidanren first proposed the stalled “white-collar exemption” for overtime, they wanted it to be for office employees who made at least ¥5 million. The lower threshold for the new bill, which is quite similar in character to the white-collar exemption, is ¥10.75 million, but workers understand that, in the long run, an employer’s aim is to exempt overtime for as many employees as possible. In 2014, professor Yoshio Sasajima of Meiji Gakuin University was quoted by tabloid Nikkan Gendai as saying that if the white-collar exemption were passed, affected workers’ pay would drop by as much as 13 percent.

So it was no surprise last week when a Kyodo News poll found that 69.1 percent of the public thought it was unnecessary to pass the bills. Media pinned the blame on the way Prime Minister Shinzo Abe presented them in the Diet, using data provided by the labor ministry that purportedly showed workers who already toiled under the discretionary labor system were actually working fewer hours, but opposition lawmakers quickly pointed out that the data was seriously flawed. Eventually, Abe retracted the data and even the bill itself. However, he refuses to cancel the ko-puro bill, despite the fact that opposition lawmakers see it as simply the discredited white-collar exemption law with a different name. Moreover, last week a labor standard office concluded that an employee for Nomura Real Estate Development Co. who was working under the discretionary labor system committed suicide in 2016 due to overwork.

The public seems more engaged in the controversy than the press is. At the height of the Diet debate, TV news was wrapped up in the Pyeongchang Olympics. Even NHK dedicated only cursory coverage to the bills. The exception was TV Asahi, whose nightly news show, “Hodo Station,” showed the ruling party dodging the opposition’s questions. The program’s own survey of viewers found that 65 percent said the discretionary bill should be scrapped. The most penetrating coverage was offered by TV Asahi’s “Morning Show” on Feb. 27, the day before the discretionary bill was retracted. Host Shinichi Hatori explained how the data presented by Abe was flawed and Shiro Tazaki, a political pundit known to be a close friend of Abe’s, tried to defend the government by saying that the bad data showed how the quality of work in the labor ministry had “declined.” There was nothing wrong with the bill itself, he said, and as soon as better data was available, people would understand.

Regular commentator Toru Tamakawa dismissed Tazaki’s assertion, saying the flaws were so egregious that they must have been intentional. Tamakawa concluded that the labor ministry — whose job, after all, is to protect workers — purposely sabotaged the bills by including dodgy statistics that could be “picked up” by the opposition.

With the failure of the discretionary labor bill, the government is doubling down on the ko-puro bill in order to placate Keidanren, whose head until the end of May is Sadayuki Sakakibara of Toray Industries, Inc. Last November, it was revealed that a Toray Group company forged quality assurance documents due to a shortage of qualified staff, thus forcing an unqualified manager to make up data because he couldn’t finish the job, even after working overtime.

On March 2, Nikkan Gendai presented this example as an illustration of nabakari kanrishoku, or “management in name only.” The worker was given a management position so that the company wouldn’t have to pay him overtime. When suppressing pay is the desired end, any means will do.