Employment of the Young and Elderly

Part 4: Declining importance of regular employees

KAWAGUCHI Daiji
Faculty Fellow, RIETI

These days we often read about the ratio of non-regular employees, such as part-timers and temporary agency workers, reaching as high as 35% of all employed workers. Some time ago, it was commonly assumed that non-regular positions were for female workers; however, that employment style has also become common among young male workers.

According to the Labour Force Survey by the Statistics Bureau of the Ministry of Internal Affairs and Communications, non-regular workers in 2002 accounted for 9.4% of all employed workers aged 25 to 34, but the figure increased to 15.3% in 2012. Why are the ratios of females and young males working on a non-regular basis increasing?

One reason is that information technology has standardized ordinary office tasks, leading to an increase in the types of work that can be handled by non-regular workers. In addition, as globalization has resulted in a more competitive environment for companies, they are facing higher uncertainty about the future, leading them to hire more non-regular workers who are easier to terminate when demand for their services or products decreases.

Other factors that have been pointed out include the stagnation of the manufacturing industry, which had a relatively high proportion of regular employees, the growth of the service industry, where there are relatively more non-regular workers, more women seeking flexible working styles, and an increase in the labor force participation rate of the elderly.

While these are all correct, what is important is whether the sharp rise in the number of non-regular employees can be explained quantitatively. Asia University Associate Professor Hirokatsu Asano, Kobe University Associate Professor Takahiro Ito, and I showed that the quantitative effects of these factors are limited.

The more important factor is the declining importance of regular employees. Many Japanese companies traditionally adopted a system encouraging their workers to accumulate skills by guaranteeing long-term employment and offering wages based on accumulated firm-specific skills. The system was based on the premise that a stable economic growth will continue in which workers' accumulated skills will lead to companies' high returns. When the period of stable growth came to an end in the early 1990s, regular employees became less important.

>> Original text in Japanese

* Translated by RIETI from the original Japanese "Yasashii Keizaigaku" column in the October 22, 2013 issue of Nihon Keizai Shimbun.

October 22, 2013