The government white paper on labor and the economy made public early this month by the labor ministry is unusual in that it criticizes the government’s long-standing policy of deregulating the labor market.

The report says that deregulation as well as moves by enterprises to reduce personnel costs have increased the number of contract workers and created a growing pay gap between full-time and contract workers.

The white paper’s description of the 2000s sheds light on the overall weakening of the Japanese economy. It points out that, during that decade, industries with strong production capability tried to increase labor productivity by reducing employement of recruits, and industries with stagnant production capability sought to improve their bottom line by hiring temporary contract workers. The white paper notes that during those years, companies thought that giving on-the-job training to recruits was burdensome.

Noting that the percentage of workers with annual income of between ¥1 million and around ¥2.5 million increased from 1997 to 2007, the white paper says that hiring large numbers of contract workers led to an increase in the number of low-income workers and exacerbated a pay gap between full-time and contract workers. This situation has impaired income growth and dampened consumption, contributing to stagnation in domestic demand.

The government and enterprises cannot expect to have the kind of creative and dedicated workers necessary to beat the competition from emerging economies if companies continue to hire on a contract basis. To create the kinds of attractive goods that capture markets and improve the nation’s industrial structure, they need to continuously nurture their workers’ capabilities. They should reflect on the white paper’s argument that long-term employment nurtures dedication and creativity in workers and ensures a smooth transfer of knowledge and skills to younger employees.

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