Reform of the labor market

Author Name YASHIRO Naohiro  (International Christian University)
Creation Date/NO. August 2008 08-J-040
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Deregulation in the labor market is accused of increasing income disparities. Nevertheless, the fundamental reason for the increasing number of non-regular employees is the persistence and significance of rigid hiring practices and the seniority wage system from high growth periods that carry over, into subsequent periods characterized by long-term stagnation of economic growth. A major factor behind the widening of income disparities is that the pursuit of employment stability by particular firms, rather than by the labor market as a whole, is having the effect of differentiating the labor market between what goes on within and outside of those firms.

Amid the simultaneous advance of the globalization of economic activity, and the declining as well as the aging of the Japanese population, it is of fundamental importance to correct these disparities by raising wage levels not only by increasing the labor productivity of individual industries, but also by ensuring a smooth transfer of labor from fields of low productivity to those in which productivity is high.

Only the traditional form of lifetime employment enjoyed by regular employees is considered to be a "good way of working" despite its strong restrictions such as long working hours and frequent job shifts that employees agree to in return for employment security. Other forms such as temping are "a bad way of working", considered to be insecure, and are subject to stiffening regulatory moves. However, the conversion of 17 million non-regular employees into regular employees cannot possibly be called a realistic policy. Rather, the best direction to take for carrying out a proper reform of the labor market is to lay down equable rules premised on diverse ways of working that make no distinction between regular and non-regular employees, and facilitate the extension of eligibility for employment insurance and social insurance to workers other than regular employees.