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Asia Economy Last Updated: Jan 23, 2015 - 6:35 AM

Japan's Labour Market: Lifers, temps and banishment rooms
By Michael Hennigan, Finfacts founder and editor
Aug 22, 2013 - 7:08 AM

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A bullet train speeds by Mount Fuji, Japan.

Japan's Labour Market: The internal affairs ministry announced at the end of July that the national employment rate fell to 3.9% in June, down 0.2 percentage points from the previous month. It was the first time that the unemployment rate had dipped to a level below 4% since October 2008, weeks after the Lehman Brothers crash. However, behind the official window dressing is a dysfunctional system of lifers (jobs for life), temps (temporary workers) and banishment rooms known as oidashi-beya. The workforce breakdown in what are officially termed regular and irregular workers is roughly at a ratio of 60:40.

The Japanese jobs model dates from the 1920s and is based on a 'job for life,' seniority based pay, extensive career-long training, profits shared out fairly inside the firm, and active employee involvement in the life of the firm. Everything is done to build employee loyalty in return for wage-flexibility during recessionary periods. However, in the 1970s, almost 1m employees became jobless within their firms, with no precise task to perform but continuing to be paid due to an implicit social contract to maintain excess manpower.

As in other countries, a dual labour system developed where the rights of permanent workers remained sacrosanct while companies increasingly also hired temporary workers who could be dismissed with little notice and a company such as Toyota pays such staff less than the Irish minimum wage of €8.65 ($11) in a high-cost country.

The Japanese hourly manufacturing labour cost in an international comparison was US$35 in 2011. Ireland's was at $40 (Ireland has one of the lowest employer social security costs in Europe). [pdf}

Unless firms are going out of business, they are barred from firing staff employees. They can offer severance terms to employees but acceptance is voluntary. The oidashi-beya has developed to induce unwanted employees to leave.

Japan Daily Press reported last May:

[Basically, banishment rooms are departments where companies transfer surplus employees and give them menial or useless tasks or even nothing to do until they become depressed or disheartened enough to quit on their own, thus not getting full benefits, unlike if they were actually let go. Imagine having to stare at a TV monitor for 10 hours at a time each day, in order to look for “program footage irregularities.” Of course companies would not admit to doing this, and instead will make up generic (or even creative) titles and department names like “Business & Human Resource Development Center” or “career development team”. And it’s not small companies that are doing this, but big ones like Hitachi Ltd., Sony Corp., Toshiba Corp., Seiko Instruments Inc., a NEC Corp. subsidiary, and two subsidiaries of Panasonic Corp.

A public relations (employee) from the main office of Panasonic said that the BHC section is “training employees to acquire new skills so they can work at different sections.” 468 employees were added to this department in April, mostly coming from sections that were doing poorly. In short, 1 in 10 workers at the company are at the BHC. So far, only 35 employees have left the company while 29 got transferred to other departments.]

The government has estimated that there are 4.6m surplus employees in Japanese companies -- about 13% of the permanent workforce.

Last June, Shinzo Abe, prime minister, announced the 'third arrow' in his reform program following monetary easing and a fiscal stimulus, which included raising the workforce participation rate for women aged 25-44 to 73%; increasing the percentage of female executives to at least 30%; doubling the number of profitable midsize companies to 1.4m.

While the plan had some minor proposals on labour reforms it has been suggested that the labour “surplus” could be swept away through a proposed law to enable creation of ‘jun-shain,’ or semi-regular staff.

This could involve the dismissal of large numbers of staff in manufacturing firms, who would flow to jobs in the service sector at an hourly pay of ¥800 (€6).

A government report shows that irregular workers account for 38% of the nation’s employed workers, numbering over 20.m. As many as 57.5% of female workers fall into the irregular workforce category.

Compared with 2002, the number of manufacturing and construction workers dropped 1.7m and 1.15m, respectively by 2012 while the number of medical and welfare services workers rose 2.32m.

It's a similar pattern in the US where good-paying jobs in manufacturing have been replaced with low-paying jobs in services.

In a country that needs a lot more babies coupled with an antipathy to immigration, the imbalance of burdens on young people is not very wise.

French Treasury's briefing on Japan's labour market [pdf; in English]

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