China in Transition

Work Sharing: Will Japan Follow in China's Footsteps?

Chi Hung KWAN
Consulting Fellow, RIETI

While Japanese companies are considering the introduction of work sharing to support employment in a long-enduring recession, China, is now struggling to abolish the practice, which has been implemented by its state-owned enterprises for half a century. These changes in the labor market show a marked contrast between Japan, with its inclination toward a socialist style, and China, which is moving full-tilt toward a market economy.

During the planned economy era in China, it was common that state-owned enterprises employed ten people to do jobs that required only five. This work sharing system was clearly done at the expense of economic efficiency. But it contributed to social stability and conformed to socialist ideology, which espouses the importance of equality.

Since the reform and opening of China, however, competition has intensified in the market and the business performance of state-owned enterprises has further deteriorated with the introduction of non-state-owned enterprises such as township and village enterprises and foreign-owned enterprises. Financing by the national fiscal budget or loans by state-owned banks to cover the losses of state-own enterprises has become more and more difficult, prompting the government to take serious actions to restructure them.

Although fast-growing non-state-owned enterprises are now creating new employment opportunities, this is not enough to fully absorb millions of workers who have lost their jobs at state-owned enterprises. According to the latest official figures, the number of registered unemployed is about 6.8 million (an unemployment rate of 3.6%). But when the number of temporarily laid off employees is included, the figure is about three times as large.

The problem of unemployment is one of the greatest concerns for the Chinese people and in order to promote social stability, the government must face the politically urgent challenge of developing a social security system that includes unemployment issuance and pensions. Reforms always cause pain and reform of the labor market is no exception in this context. China's leaders adequately recognize, however, that if the issue is put off further the costs will be all the greater.

In contrast, the introduction of work sharing was a major issue in Japan's "Spring wage offensive" this year. Many people hope that work sharing will be effective as a temporary and emergency measure to get Japan's labor market out of a pinch. Yet, in the long-term, this may lead to a retreat of the market economy and to more government interventions. Companies adopting work sharing have to pay their employees wages in excess of their productivity, with adverse effects on their competitiveness.

In order to make this system sustainable, competitors must all bear the same handicaps, and companies belonging to the same industry would need to coordinate their wage policies. In addition, since Japanese companies must compete with overseas businesses, there are limits as to what can be coordinated domestically. Toward supporting employment and promoting international competitiveness, governmental support is appropriate. A study group consisting of legislators of the ruling Liberal Democratic Party (LDP) has recently proposed public subsidies for work sharing, and more government support may be forthcoming.

As Japan searches for successful examples of work sharing, the experience of many European countries, notably the Netherlands, has been considered. Yet, failed cases of work sharing, such as with China's state-owned enterprises, should not be forgotten. Otherwise, the day may come when Japan has to learn from China's experience in abolishing work sharing.

March 29, 2002

March 29, 2002