Labor reform law nudges corporate Japan to rethink working styles

Working late, falling asleep on trains due to exhaustion and getting drunk to release tension from work might still be the typical image of the “salaryman.”

This country is notorious for a culture of overwork. Employees who stay late are still praised for hard work while others are frowned upon for leaving before their bosses do. Many even feel guilty about taking paid holidays. Karōshi, death from overwork, is a word now known worldwide.

In a bid to change long-held working behaviors, a labor reform law was introduced in late June, setting a legal cap on overtime as one of its pillars.

The new legislation limits overtime work to less than 100 hours per month and 720 per year, and companies will be punished if they exceed the limits. Some are staying ahead of the curve by introducing reforms that allow employees to work less while contributing to improvements in productivity.

“With the introduction of overtime caps under the law, more companies are expected to shed overtime hours and have their employees rest on weekends properly,” said Mikio Mizobata, a senior researcher at Daiwa Institute of Research.

The law took force at a time when the issue of karōshi was dragged back into the spotlight by the 2015 Christmas Day suicide of a 24-year-old employee who was overworked by advertising giant Dentsu Inc.

Even before the law was enacted, there were companies taking measures to reduce overtime and make it easier to take paid holidays. The new law, however, requires companies to make serious efforts to tackle the issue.

As a labor reform pioneer, major information technology service provider SCSK Corp. launched an overtime prevention campaign in fiscal 2013. As part of the campaign, it makes up for workers’ reduced overtime allowances in the form of a special bonus.

As a result, the company’s average overtime hours sank to 16.4 hours a month in fiscal 2017 ended March, down from 27.8 hours in fiscal 2011. And the average number of paid holidays taken rose to 18.8 days in fiscal 2017, up from 13 days in fiscal 2011.

“In the IT industry, people had thought working longer hours was a virtue,” said Yoshinari Kobayashi, deputy general manager of the company’s human resources group.

“But management recognized if the workers don’t stay healthy and don’t think their jobs are worth doing, it makes it difficult to provide value-added services to our customers and the company’s growth also stagnates,” he said. “That’s why we have changed our way of working.”

Kobayashi said the changes have translated into more earnings. SCSK’s operating profit for fiscal 2017 stood at ¥34.6 billion ($312 million), more than double from six years earlier.

Panasonic Corp., which introduced a five-day workweek in 1965 for the first time in Japan, now allows workers to take paid leave for child care, nursing care and other family matters on an hourly basis instead of a half-day basis. This helps them use the family support paid-leave system more flexibly.

The electronics giant is also active in other areas. On the day the reform legislation was enacted, Panasonic said it introduced a system allowing employees to work at other companies for a certain period of time to help them broaden their perspectives and gain new abilities and skills.

The rapidly aging society and declining birthrate are some of the factors behind the new law. With the decline of the working population, there is a also a need to create working environments more favorable for women.

Staffing firm Pasona Group Inc., where women account for 60 percent of the payroll, is promoting measures to make it easier for working mothers to return to the workforce while raising children.

Pasona has an in-house baby-sitting facility for working mothers. The company regularly holds meetings between women who are returning to work a year or two after giving birth and veteran working mothers so they can exchange information. There is also a sales team consisting of only working moms.

Thanks to such measures, nearly 100 percent of the female employees return to their jobs after giving birth, Pasona said.

“We have been making efforts to create an environment that enables our workers to easily fulfill their potential,” said spokeswoman Yoko Morika.

The law also emphasizes “equal pay for equal work” for regular and nonregular workers, and includes the so-called white collar overtime exemption system.

However, further complications loom before the system’s actual introduction. The system was major source of contention between the ruling and opposition parties during Diet deliberations on the law.

The system exempts skilled professional workers, such as researchers, whose annual wages often top ¥10.75 million, from work-hour regulations.

The government has claimed the scheme, which evaluates workers based on results rather than hours worked, will allow for “flexible and diverse work styles.” Opposition parties, including those backed by labor unions, have countered that the system will lead to an increase in karōshi, criticizing it as a “zero overtime pay” scheme.

Apart from the overtime issue, there are also problems with low labor productivity.

Japan’s labor productivity, as measured in dollars per hour, was $46 in 2016, the lowest among the Group of Seven countries and 20th among the then-35 members of the Organization for Economic Cooperation and Development, according to data from the Japan Productivity Center.

Considering the declining labor population, improving productivity through work-style reforms is a prime objective. Some companies are trying to do so by employing advanced technologies.

SoftBank Group Corp., for example, is promoting the use of artificial intelligence, internet of things technologies and robots to improve individual productivity.

It uses AI in various departments, such as human resources, where it helps sort through entry sheets to select new recruits.

“We aim to double productivity by spending half the time so far needed,” said SoftBank spokeswoman Rika Takahashi. Workers do not worry about being replaced by AI and have more time to do innovative jobs, she added.

Daiwa Institute’s Mizobata said the introduction of the law could have negative short-term side effects as incomes are expected to fall due to a decline in overtime work.

“If labor productivity improves, income would not fall,” he said. “It would be difficult, however, to expect an immediate improvement in labor productivity. A possible income decline could have a negative impact on consumption.”

Mizobata, however, added that more companies are likely to compensate employees for their efforts to reduce overtime work through such measures as giving extra bonuses, which makes it an incentive to improve labor productivity.

“A negative impact might be bigger in the short term but positive effects are expected to eventually surpass this, having a plus impact on the overall economy,” he said.