Equal pay for equal work is fair

The Abe administration has put the “equal work, equal pay” rule on its policy agenda, but it remains unclear how far the administration will go to pursue this goal. Few people would object to the idea that workers should be paid the same if they’re doing exactly the same job irrespective of whether they are regular full-time employees or on irregular job contracts. There is a view that the seniority-based pay system prevalent among Japanese firms in itself is inconsistent with this principle. But the administration’s efforts should focus on improving the conditions of the growing ranks of irregular workers, who are reportedly paid an average of roughly 60 percent of what regular employees make.

Prime Minister Shinzo Abe’s newfound enthusiasm on the rule may come as a surprise given his administration’s record of business-friendly policies. Since the 1990s, Japanese companies have increasingly relied on an irregular workforce, such as part-timers, those on term contracts and temporary dispatch workers, as they sought to save manpower expenses. These workers today account for about 40 percent of the nation’s total workforce. Even as job data improves to the best in nearly a quarter century, demand for new employees remains stronger for irregular positions than for regular workers.

According to a 2015 survey by the Health, Labor and Welfare Ministry, the average monthly salary of people on irregular contracts who work full time was 63.9 percent that of regular full-time company employees. This disparity is in fact the narrowest since relevant statistics became available in 2005, as the growing manpower shortage pushed up wages for irregular workers faster than those for regular full-time employees. Still, the gap would be wider if bonus payments are included. The disparity remains much wider than in advanced European economies, where hourly wages of part-time workers are around 80 percent those of full-time employees.

There are two ways of thinking behind the idea of same work, same pay. One is that you should be paid the same for doing the same work irrespective of your employment contract. The other is that workers’ pay should be balanced with the differences in their responsibilities and employment conditions. It has not been made clear which way of thinking the prime minister or his Liberal Democratic Party has in mind when they discuss legal measures to establish rules governing same work, same pay. As the first step in its efforts, the administration reportedly plans to compile a guideline showing concrete examples of unfair wage disparities — which in turn would specify under what conditions businesses would reasonably be allowed to offer different pay for regular and irregular employees.

Japan’s prevailing employment practices appear incompatible with the same work, same pay principle. Many companies adopt a seniority-based pay scale for their full-time employees, which is based on the practice of lifetime employment. Workers get higher rewards the longer they work for the same employer. Irregular workers outside the pay scale face a wage gap with the regular employees even if they perform work similar to what their full-time counterparts are doing.

Complicating the issue, job descriptions are often not made clear for many positions at Japanese firms, leaving the criteria for “same work” blurred. There is a view that it’s reasonable to reward regular employees with higher pay because they’re typically given greater responsibilities and extra burdens, including the prospect of transfers to other sections or remote branches. Disparities still exist in European economies where same work, same pay rules have been established. Whether the much wider disparity in Japan is reasonable is another question that should be addressed.

Abe said last month that improving conditions for irregular workers “is a major challenge that cannot wait to be tackled” as he emphasized his legislative plan for pursuing same work, same pay. Abe also said last year that his government plans to increase the minimum wage by 3 percent each year so it will rise from the national average of ¥798 in 2015 to ¥1,000 by around 2020. That should contribute to improving the working conditions of irregular workers, many of whom are reportedly hired at close to the legal minimum level.

One question is how businesses will deal with the rise in manpower expenses that would result from higher wages for irregular workers. Companies could in theory cut the pay of their regular full-time employees to narrow the disparity with irregular workers. In 2014, Abe broached the idea — as a topic of discussion for labor reforms — that companies should review their seniority-based pay scale in favor of a wage system based more on performance, so that younger workers, including those on irregular contracts, can get higher rewards. But that should be a different subject — and left to each company and their workers to decide. The priority should be on improving the wage levels of the irregular workforce.