Working Hours Policy From an Economics Standpoint

Author Name HIGUCHI Yoshio  (Keio University)
Creation Date/NO. February 2010 10-J-010
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In recent years, the Japanese government has introduced a number of measures to solve the problem of employees working excessive hours. Although these measures can sometimes interfere with the free trade of individual economic entities, this paper returns to the basic standpoint of economics to consider on which occasions government interference in the decision on working hours can be justified and by what policy measures the interference might be effective. As a result, the paper shows that, unlike other general trading of goods, "market failure," as it is known in economics, can readily arise in a special trade called "labor" that is inseparable from the human mind and body. and that government interference with working hours becomes necessary, particularly in the following cases: when low wages and long working hours arise in an environment where a minimum income and leisure time necessary for survival exist; when large semi-fixed costs arise, reflecting only changes in the number of personnel, irrespective of working hours, under circumstances where there is difference in bargaining power between labor and management; when individual labor-management talks are a "one-to-one" deal as the labor market is not liquid; when teamwork is required; and when a "negative external effect" arises from individual work agreements that have an impact on other workers. This paper examines the likelihood that the aforementioned conditions will come into effect along with changes in economic growth, progress in globalization, and the upgrading and diversification of duties, resulting in changes in the need for and nature of policies on working hours. In doing so, these perspectives from an economics point of view will be compared with those from a legal perspective. This paper shows that government interference in the decision on working hours can be beneficial for workers, but could be disadvantageous for employers and the overall economy, depending on how it is implemented. Problems such as workforce downsizing could also arise for workers. It is thus concluded that the government needs to take these points into account when implementing working hour policies.

*This paper is an extension and a revision of previous discussion papers by Higuchi (2007).