Japan’s Workers Treading Water

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After three decades of tepid economic growth and stagnant wages, Japanese employment practices have shifted from stable jobs to contingent work. Half of the  21 million contingent workforce lives in relative poverty. Gender bias remains extensive, and foreign workers are subject to exploitation.

 

Japanese employment practices have come under sustained critical scrutiny. Back in the 1980s, when the Japanese economy was riding high, there was a mainstream consensus that its employment system was paternalistic because employers embraced practices such as lifetime employment, extensive on-the-job training, and annual wage increases and did not fire workers during business cycle downturns. Firms also sponsored in-house unions that fostered a sense of shared destinies between workers and managers, while wage differences between them were far less than was typical in the US.

At that time, the Japanese employment system was lauded as one of the keys to Japanese companies outperforming American counterparts because they nurtured loyalty, embraced technological innovation and promoted excellence through quality circles where workers would share insights on how to improve production processes. This was a time when Japanese manufacturers stormed global markets and won customer loyalty by selling reliable goods and offering good after-sales service. While global stock markets plunged in 1987, Tokyo remained resilient, sparking a boom in books explaining the secrets of Japan’s success. So-called revisionists attributed this success to unfair trading practices and government-rigged markets, but the power of these explanations soon faded.

Just as the Japanese juggernaut appeared ready to take over the world, Japan’s asset bubble burst in the early 1990s when stock and land prices cratered, propelling the economy into a prolonged slump known as the Lost Decade.

From 1990-2020, Japanese growth was tepid compared to other G7 nations, and the stock market average didn’t recover to the 1989 Nikkei average peak of nearly 39,000 until February 2024. In comparison, the Dow average increased more than thirteenfold over the same period (2,510 to 39,000). From 1990 -2019, Japanese growth averaged less than 1% per annum compared to 2.5% in the US, while per capita GDP in Japan increased modestly from $25,371 in 1990 to $33,815 in 2022 as comparable US figures rose from $23,889 to $76,399. The sense of malaise was heightened when the Chinese GDP surpassed Japan’s in 2010 and then when Germany overtook Japan as the 3rd largest economy in 2023. During this prolonged economic slump, Japanese labor treaded water.

 

Productivity and the Precariat

Since 1990, Japanese overall productivity has remained about 30% lower than in the US, as measured in output per worker or per working hour.

There are various explanations for why Japanese productivity has remained relatively low, but one key factor appears to be the increase in nonregular employment from almost 20% in 1990 to the current level of 37%.

This shift from stable to precarious employment influences productivity because firms typically exclude the precariat from all but the most basic training and education programs. On-the-job training (OJT) is expensive and time-consuming, but because there is limited job hopping among full-time workers, the firm can recoup its investment in workers’ human capital and benefits from upgrading their skills, which boosts productivity. However, Japan’s stable employment paradigm featuring lifetime employment has ebbed as firms seek to introduce a more flexible employment system and cut wage outlays by relying more on part-time, temporary, and dispatched workers engaged in limited-duration contracts. The expansion of this precariat was made possible by a series of neo-liberal reforms enacted at the outset of the 21st century that newly allowed the hiring of contingent workers in various sectors, such as manufacturing.

This precariat is poorly paid (about 60% of regular workers’ wages) and doesn’t enjoy job security. Moreover, working on the labor periphery generates intense anxiety for those struggling to make ends meet and boosts suicide along with child poverty.

With a worsening labor shortage due to a prolonged slump in the birthrate, it is striking that the percentage of nonregular workers expanded so rapidly and remains so high. Only 7.4% of the precariat were able to switch to regular jobs in 2022 despite government subsidies promoting such a transition and a 2013 law requiring firms to convert nonregular workers to full-time permanent status after five years or terminate their employment. The lack of job training for this precariat is one factor making it difficult for them to change their status to full-time regular employment.

Overall, there are 21 million nonregular workers, and half of them constitute the working poor, those who earn less than Yen 2 million a year.

Although Japan appears to be a prosperous society, it has a high relative poverty rate of 15.4% overall, 44.5% for single-parent households and 11.5 % for children. Living standards for the precariat and their dependents are often dire. Nonetheless, under PM Shinzo Abe (2012-2020), the social safety net to help these households was pared back.

A tightening labor market pressures firms to offer better terms to recruit and retain workers, but this has been offset by increased women’s labor force participation and an increase of foreign workers. This influx has kept wages low for part-time and temporary workers, a trend reinforced by the practice of rehiring veteran workers when they retire at significantly reduced salaries (saikoyoseido). This system has its problems, but to some extent, it is mutually beneficial because retiring workers have firm-specific skills, and their qualities are known to management while many retirees need to keep working because pensions in Japan are hard to live on. In addition, because their prime years have been work-centric, many older male workers have weak community ties and find retirement difficult and unappealing (as do their wives). Nearly 11% of Japan’s total workforce is 65 years or older, the standard retirement age, amounting to 6.4 million workers, highlighting the crucial role of retirees in alleviating labor shortages.  As of 2022, the percentage of firms rehiring retirees reached 39%, double the figure for 2012.

Japanese employers are not as paternalistic as one might assume from positive media portrayals. The term karoshi (death from overwork) is evocative of a working culture that pressures workers to sacrifice their health for the benefit of their employer. Periodically, there is a high-profile case that stirs up a media frenzy and collective handwringing, but then the moral panic subsides, and attention shifts to some other disquieting scandal. It is emblematic of government laxity that a firm found to have illegally required staff to put in extensive overtime was fined a paltry Yen 500,000 following the death of one of its employees.

 

Womenomics

Abe’s “womenomics” proved a fiasco in terms of empowering women. Although there was a significant increase in women’s labor force participation from 48% in 2014 to 54% in 2023, almost all of this was as nonregular workers. During COVID, some 500,000 lost their jobs because firms viewed them as expendable, highlighting the perils facing the precariat of contingent workers. Moreover, Abe abandoned his initial goal of boosting women to 30% of managers by 2020; currently women constitute about 12% of managers and participate on just 14% of corporate boards compared to 32% in the US.

Overall, on Abe’s watch, Japan plunged on the World Economic Forum’s Global Gender Gap Index from 101 in 2012 to 121 in 2020 out of 146 countries. In 2023, Japan fell further to 125, the lowest ever.

The disproportionate number of women in the precariat (68% of the total) ensures that the gender wage gap remains large, currently about 22%, compared to 17% in the US and 15% in France. In addition to lower pay, only 60% of regular workers’ pay, access to benefits is also limited.

One problem is that women in their 30s and 40s are mainly nonregular workers, owing to household tax incentives to limit income to just over Yen 1 million and the need for flexible schedules to take care of children and elderly parents due to a persistent gender division of labor.

 

Foreign Workers

Japan increasingly relies on foreign workers, but immigration has not become politicized as it has in other societies. According to a 2018 Pew poll, public attitudes are neither especially xenophobic nor enthusiastic, reflecting an acceptance that there is no choice. A 2020 Nikkei poll found quite positive attitudes among Japanese towards foreign workers compared to other advanced industrialized nations, with almost 70% welcoming more foreigners. In the context of a severe labor crunch, businesses are eager for more foreign workers in various sectors ranging from construction and farming to hospitality, elderly care and fisheries. As a result, Japan’s foreign workforce rose from 788,000 in 2014 to just over 2 million in 2023 following immigration reforms that opened up new visa categories since 2019 for blue-collar workers and those with desired skills.

As of 2022, 343,000 of that total were employed in the Technical Internship and Training Program (TITP), an initiative that has been dogged by controversy since it was established in 1993 due to extensive labor and human rights violations. This program was ostensibly designed to impart vocational skills that would benefit the home country when the interns return, but in practice, it has channeled cheap labor to small and medium-sized firms that have difficulty recruiting enough workers. As of 2022, the monthly wages averaged Yen 178,000 (about $1,190) compared to the national average of Yen 311,000, and unlike regular workers, they don’t receive bonuses or other benefits. TITP visas are tied to the place of employment, leaving them vulnerable to exploitation. In response to widespread criticism, in February 2024, the government proposed abolishing TITP and replacing it with a skill-developing program that would grant a three-year visa and allow switching of jobs after a year or two.

This proposal also allows for the transition to a five-year skilled worker visa and the possibility of sponsoring relatives. Incrementally, the government is adjusting its foreign worker regulations and expanding the possibility of permanent residence. Yet, the fundamental problems confronting foreign workers in Japan are language and the lack of policies and institutional support for their integration into society.

 

Karoshi

Japanese employers are not as paternalistic as one might assume from positive media portrayals. The term karoshi (death from overwork) is evocative of a working culture that pressures workers to sacrifice their health for the benefit of their employer. Periodically, there is a high-profile case that stirs up a media frenzy and collective handwringing, but then the moral panic subsides, and attention shifts to some other disquieting scandal. It is emblematic of government laxity that a firm found to have illegally required staff to put in extensive overtime was fined a paltry Yen 500,000 following the death of one of its employees.

Many karoshi deaths are due to heart attacks, strokes and work-related suicide. In 2022, there were nearly 3,000 recognized cases, up from almost 2,000 in 2021. This figure probably understates the extent of the problem, given the government’s reluctance to crack down and limited resources to monitor the situation. The government has passed laws to curb working hours and established a monthly limit for overtime, but these labor reforms have not transformed the attitudes of managers about dedication and what employees think it takes to get promoted.

Although the new guidelines limit overtime hours to 45 hours per month and 360 hours per year, 100 hours per month is allowed during “busy periods”. However, due to a shortage of labor inspectors, lax enforcement is the norm.

Moreover, PM Abe’s 2018 work reforms made it more difficult for the surviving relatives of highly paid professionals (earning more than Yen 10.75 million, currently about $73,000) to gain government recognition for karoshi, and the attendant compensation for family survivors, by eliminating the ceiling on overtime hours for them.

There have been some high-profile cases of work-related suicides associated with so-called “black corporations”. These businesses are notorious for forcing young workers to work excessive overtime without overtime pay. These modern-day sweatshops range across a variety of industries, such as restaurants, gaming and IT services. They flout labor laws and subject employees to miserable working conditions while imposing excessive work targets. Furthermore, promises made during recruitment about salary, job responsibilities and promotion are often not kept. Despite media reporting and government naming and shaming, these firms continue to operate and intimidate workers into engaging in dishonest or illegal activities. A nationwide survey in 2023 found that 38.6% of workers acknowledged they had worked for such a company. The government has tried to crack down on these exploitative enterprises, but they are so common that doing so amounts to a whack-a-mole marathon.

 

Teleworking

The government’s COVID-19 pandemic countermeasures included encouraging firms to expand teleworking with a notional target of 70% of employees. Many firms were unprepared for teleworking, lacking the digital infrastructure essential to the transition, and having employees at dispersed locations not under the direct oversight of managers ran counter to a corporate culture emphasizing teamwork, visible sacrifice and rigid hierarchies.

Rather quickly, however, teleworking did expand to include some 12 million workers. A 2022 government report found the overall rate of telework increased from 13.3% in 2016 to 27.3% in 2021, with women accounting for one-third of all teleworkers. The overall rate in Tokyo surged from 16.9% in 2016 to 42.1% by 2021 due to a concentration of jobs suitable for remote work and firms with better digital capacities. The pandemic exposed the digital divide in Japan and increased existing disparities by gender, work status, income and firm size.

In the COVID-19 aftermath, many firms have offered hybrid options combining office work and teleworking because many workers prefer it. Some 40% of employees do some of their jobs remotely, but overall, most workers (62%) are back at the office five days a week. Management still values a face-to-face work style and is not confident that good communication can be maintained on a remote basis. Additionally, many workers began to feel isolated at home and enjoyed office interactions and the relationship-building that ensued. In some sectors like IT, however, only one-third have returned to the five-day-a-week office routine as many have grown accustomed to not commuting and prefer flexible schedules. It is not clear whether the increased reliance on digital technologies has boosted productivity overall, but many workers claim it has and prefer working from home.

One significant impact is that downtown office vacancies have risen in cities across Japan. By eliminating or reducing often lengthy commutes for many workers that can be 3 or more hours a day in Japan, teleworking can have a major impact on workers’ well-being and ability to focus energy on work. This enhances the possibility of improving work-life balance and makes it easier for couples to share in raising families and doing household chores.

The surge of DV in Japan during 2020 seems linked to telecommuting. This shadow pandemic is surely underreported, but even so, the statistics are grim. COVID-19 countermeasures encouraged people to stay home to contain transmissions but put many people at greater risk by confining them with abusive partners. Social isolation reinforces the sense of helplessness that victims often feel. Nearly 40% of nonregular workers in the workforce have not benefitted from remote work options because most are not allowed to telework. Apparently, firms did not trust them as they did full-time workers. Women were thus disadvantaged by the pandemic because they are disproportionately nonregular workers.

Japan’s stodgy, inflexible business culture is often cited as a significant impediment to the expansion of telework, but this is a misleading generalization that overlooks how some of Japan’s leading firms are shedding old ways and embracing telework as a growth and survival strategy. Thus, teleworking might eventually help women better balance the demands of work and home as it becomes a new normal and management rethinks how it integrates remote working.

 

Wage Stagnation

For the past three decades, Japanese household income has stagnated, as real hourly wages have increased by a paltry 3% between 1996 and 2019. This stagnation is attributed to the IT revolution, declining union membership, neoliberal deregulation and fading alliances between labor and political parties. Only 16% of Japan’s workforce is currently unionized, marking a sharp decline since 1989, when it was 26%. The expansion of the precariat is also a major factor as regular workers earn an average of Yen 2,500 yen per hour while temporary workers make Yen 1,660 yen, and part-timers earn Yen 1050 yen. In 1997, Japanese regular workers earned about $38,000 a year, as they still did in 2020.

In contrast, the average annual South Korean salary was $21,830 in 1990 but almost doubled to $41,960 a year in 2020. Employers have been resistant to wage increases due to deflation, but this reluctance contributed to deflation as workers have limited income for consumption. The more recent inflationary trend in consumer prices has led to wage increases in 2024, but the headline figure of 5.28%, the highest since 1991, is misleading as this is for unionized workers and not representative of non-unionized workers or workers at small and medium-sized enterprises. In the context of prolonged flatlining of wages, workers’ woes continue.

These woes are also evident in union-busting tactics targeting truck drivers in the construction industry near Osaka who demanded wage increases and curbs on excessive overtime. The police have arrested many members of this Kan’nama union on trumped-up charges, and the leader was detained for 644 days and subjected to lengthy interrogations by numerous detectives with limited access to his lawyer. Under sustained government harassment and allegations of yakuza intimidation, 800 members have quit a union with a solid track record of collective bargaining based on a more confrontational approach than has become common in most Japanese unions.

 

Conclusion

One of the outstanding achievements of post-WWII rapid economic growth in Japan has been limited income disparities; inequality is less than in the US and UK. There is a dual economy, however, in terms of employment conditions, job security and wages offered by small and medium-sized businesses and subcontractors. Japan’s globally famous corporations, such as Sony, Hitachi, Toyota and Panasonic, represent the most modern and advanced firms.

The system of implicit lifetime employment and the other perquisites of full-time employment are generally limited to such modern, large corporations and cover less than 30 percent of the workforce. The majority of Japanese workers are not employed at these corporations and do not enjoy the same level of security and wages as their counterparts in large corporations. During business downturns, small and medium-sized firms, many of which are subcontractors of globally renowned firms, lay off workers, cut back on overtime, trim bonuses (which can reach some five months of annual salary) and make other such adjustments. And the continued marginalization of women workers and the surge in precarious employment are signs of growing disparities and declining stability in employment.

There has been intensified discourse about income disparities (kakusa shakai) since the Lehman Shock in 2008 when suddenly, many nonregular workers in the export-oriented manufacturing sector lost their jobs due to the collapse in global trade. These workers were literally out on the street as they also lost company housing and discovered that there was not much of a state safety net to provide help. Civil society groups opened a soup kitchen across the street from the Labor Ministry to draw media attention to their plight and pressure the government to act. Belatedly, it did so, opening unused government-owned housing for them, but the safety net for contingent workers remains minimal. In contrast, the government quickly introduced subsidies to support firms keeping regular workers on the payroll to keep them off the unemployment rolls.

Abenomics was often criticized as welfare for the wealthy as his policies tended to benefit the wealthiest households and boosted the exports of large firms by driving the value of the yen down. On his watch, the stock market surged, partly because export-oriented firms did well but also because the government invested heavily in the market by purchasing ETFs and mandating the national pension fund increase its stock portfolio. However, PM Fumio Kishida declared that Abenomics marginalized the vulnerable, accentuated income disparities, and failed to generate the basis for sustainable growth, a damning assessment by a member of Abe’s pro-business Liberal Democratic Party.

Nominal wages rose just 1.2% from 2012 through 2020, while Japanese households’ average wealth fell by 3.5% from 2014 to 2019. Abe’s trickle-down economics had no positive impact on the distribution of wealth or boosting socio-economic mobility.

Kishida pledged to address these problems but has gotten no traction on implementing what he calls New Capitalism because pro-business policies are in the LDP’s DNA. In addition, the LDP has lurched from one scandal to the next, eroding Kishida’s popularity and credibility. As a result, Japan’s workers are not benefitting from a tight labor market, and the marginalized precariat of 21 million workers remains on the outside looking in.

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