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Getting Down-to-Earth about Work-Style Reform

Tags: Employment , Labor , Income , Abenomics , Business Management

Kambayashi, Ryo

January 29, 2018


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As the Diet takes up legislation designed to change Japanese “work styles” and curtail excessive overtime, labor expert Ryo Kambayashi questions whether this type of intervention in Japan’s traditional labor market can really change working conditions for the better.

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Labor reforms centered on measures to curtail excessive working hours and improve the treatment of “nonregular” employees have been a focus of national debate for over two years now. The government’s proposed “work-style reforms” were expected to be a major bone of contention in the extraordinary session of the Diet convened in September 2017, yet the matter scarcely came up at all as a campaign issue in the House of Representatives election held in October. It almost seemed as if the public had lost interest in the issue during the campaign.

Much Ado about Nothing?

One explanation, of course, is that it did not become an issue because a broad public consensus had already emerged. Certainly there is little disagreement over the fundamental goals: curtailing excessive overtime, closing the wage gap between “regular” (permanent full-time) and “nonregular” employees, and boosting overall employment. Perhaps the only issues remaining are how to technically refine Japan’s labor laws and regulations to achieve specific outcomes. If that is the case, it is not entirely surprising that labor reform did not become an ideologically charged election issue like foreign policy or fiscal management.

I referred to the remaining issues as being “technical” because the efficacy of those proposed policy changes can be verified, at least after the fact. In principle, we can use quantitative data ex post to determine whether changes in the Labor Standards Law have led to an actual decline in overtime hours, a reduction in the wage gap, and an increase in the employment rate. Predicting the efficacy of a policy change in advance is rather difficult, notwithstanding the recent enthusiasm for evidence-based policymaking. But as long as one defines one’s objectives clearly at the outset, it is neither unrealistic nor unfeasible to build a reliable evaluation process into the reform plan ex ante by incorporating mechanisms for gathering the data needed to verify whether the objectives have been met. Such a built-in evaluation mechanism can be designed to minimize bias, obviating the need to earmark additional budget resources for a special independent body to perform the evaluation.

How to customize the built-in evaluation mechanism to the policies in question is a “technical” issue. It simply requires an investment of a certain number of man-hours by experts in the pertinent fields. (This is, in my view, an area in which economists should play a central role.) No amount of haggling between big business and major unions is likely to contribute substantially to the resolution of these technical questions.

This bickering over details strikes me as particularly wasteful given the limited impact the proposed reforms can be expected to have. The fact that the opposing sides were able to reach a broad policy agreement suggests that the recommended reforms are not going to dramatically change the existing situation of a majority of workers

Policy and Symbolism

Does this mean that the whole debate over workplace and labor-market reforms has been pointless? By no means. I think we can look on the outcome of that debate as a barometer of the balance of power between business and labor in today’s society. In other words, I see the reform initiative as symbolic of the dynamic between labor and management, regardless of its substantive impact on this or that group. There is nothing particularly unusual about focusing on a policy debate’s symbolic significance.

President of the European Commission Jean-Claude Juncker (right). ©Horacio Villalobos-Corbis/Getty Images
President of the European Commission Jean-Claude Juncker (right). ©Horacio Villalobos-Corbis/Getty Images
A recent good example of a highly symbolic labor issue is the initiative to establish an EU-wide minimum wage, resurrected by European Commission President Jean-Claude Juncker. The plan was originally proposed and explained in considerable detail by left-wing pro-labor forces; the fact that British Labor Party leader Jeremy Corbyn was an enthusiastic advocate gives you an idea of the policy’s position along the political spectrum. But it has encountered considerable resistance, particularly from European countries that currently have no statutory minimum wage.

What is interesting about this debate is that the stance taken by a number of EU states has been exactly the reverse of what economic logic would lead one to expect. Some of the fiercest opposition has come from Scandinavian countries like Sweden and Denmark, where wages are traditionally determined through collective bargaining in each sector. These countries have vigorously opposed the initiative, even though their de facto minimum wages are so high that they would not be affected by an EU-wide minimum. Meanwhile, the low-wage countries of Eastern Europe have been relatively supportive, even though they would be forced to raise their wages (and would therefore, according to standard economic theory, stand to lose jobs).

From the standpoint of textbook economics, since an EU minimum wage would have no effect on employment and wages in Scandinavian countries, it would not negatively impact their labor market or economic competitiveness. In that sense, there is no reason for these countries to oppose it. By contrast, one would expect resistance from countries like those of Eastern Europe that rely on low labor costs to attract direct investment from other countries.

However, the picture changes if one considers the ideological significance of a minimum wage as something imposed by the government. In the Scandinavian countries, the idea of a minimum wage mandated by Brussels represents intolerable interference in the traditional autonomy of labor-management relations, whereas in Eastern Europe, with its legacy of socialism, it provokes much less resistance.

It seems to me that Japan’s so-called work-style reform is another example of a battle with greater symbolic than practical significance. Viewed in this light, the outcome of the debate thus far suggests that Japanese workers have achieved substantial gains, notwithstanding the widespread perception that labor has done little in recent years but give ground.

On the other hand, when it comes to contemplating workers’ own mode of work and employment in the years to come, it may not be wise to take the content of these reforms too literally.

Autonomy versus Intervention

As I see it, if we really want to improve working conditions in Japan, we need to reaffirm and reinforce the way rules and norms are established in Japan’s labor market.

Generally, the principle of autonomous labor-management relations has dominated wage determination and other mechanisms of the Japanese labor market. Every effort has been made to avoid direct, third-party intervention in the bilateral relationship. However, amid rapid growth in nonregular employment and rising strains on social security policy, we have begun to see signs of mounting outside pressure on that relationship.

I have demonstrated elsewhere that the proliferation of nonregular employees at Japanese corporations has not been accompanied by a corresponding decline in regular employment <http://www.tokyofoundation.org/en/articles/2015/unchanging-face-of-japanese-employment>. Rather, the ranks of nonregular employees have come primarily from family and individually owned businesses—an informal sector in which traditional labor-management relations have never taken hold—and their biggest employers have been the so-called black companies charged with ruthless exploitation of workers in recent years. In the absence of smooth communication between labor and management, key mechanisms in the Japanese labor system, including wage determination and adjustment of work hours, cease to function effectively. This is why the government has begun taking a slightly more assertive role in the labor market via its local Labor Standards Inspection offices and Hello Work public employment service offices.

Meanwhile, we see an emerging tendency to rely on the labor-management relationship—as opposed to redistributive government policies—to guarantee minimum living standards. This is most clearly revealed in the 2007 revision of the Minimum Wage Act, which calls on prefectures to set the regional minimum wage (an intervention in the labor market’s wage-determination mechanism) “so that workers may maintain the minimum standards of wholesome and cultured living.” This statement looks like a resurrection of the presumably dead idea of a guaranteed living wage.

These trends suggest that Japan is at a major crossroads in the evolution of its labor-market institutions. It can either reaffirm the principle of autonomous labor-management relations and focus on repairing faulty lines of communication, or it can acknowledge the limits of such bilateral relations and focus on reforming the system with an eye to greater administrative and legal intervention.

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