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Economic and Employment Crisis series: (1)
The Employment Crisis:its Magnitude and the Countermeasures it Requires

February 12, 2009

Overview

One of the features of the economic adjustment that began in the autumn of 2008 is that non-regular employment on the shop floor in manufacturing industries has been the principal target of job cuts. This is because the Lehman Shock triggered a deceleration in overseas economies, with the result that Japan's export sector, especially the automotive industry, which was enjoying rapid growth on the strength of foreign demand, has seen a production adjustment of unprecedented rapidity.

As the recovery of overseas economies, especially those of Europe and the United States, is expected to take a considerable time, and given the difficulty of generating greater domestic demand, the employment adjustment is spreading. The downward shift of the level of exports due to economic deceleration overseas raises the danger that, in future, the movement to make regular employees redundant among large manufacturing companies will spread, and that more non-manufacturing industry will start to shed labor. It is possible that 2 million jobs will be lost over the next few years.

Among non-regular employees, it is agency workers on whom the job cuts have fallen the hardest. There have been calls for a ban on agencies supplying temporary workers to manufacturing industry or supplying workers on a daily basis, both of which are highly unstable forms of employment, but, given the changing structure of the economy, this would not be a fundamental solution. Diversification of goods and services and shorter product cycles have led to greater fluctuation in the volume of work, and responding flexibly to that fluctuation is no longer possible with regular employees alone. There is a risk that simply tightening regulation of non-regular labor once more will encourage businesses to transfer operations overseas and lead to even more job losses.

However, given that deregulation has proceeded faster in the area of non-regular labor, and given the lack of adequate worker protection, the huge rise in the numbers of agency and other non-regular workers poses a problem. The fact that the safety net provided for non-regular workers, including agency workers, is by no means adequate also calls for urgent action.

The number of non-regular workers, which has risen particularly fast over the past decade, includes many young people who were unable to obtain jobs as regular employees on graduating from high school. The number of non-regular workers who are also head of household is also rising. At present, conditions for non-regular workers are unfavorable, not only in terms of pay, but also in terms of skills development. It is important that the skills of non-regular workers should also be developed, and that their remuneration should increased proportionately, so as to create conditions that will enable them to plan their household finances.

As an emergency measure, the first step should be to establish a fund to provide a full range of livelihood support, occupational training and job-search support services to the long-term unemployed, who are struggling to make ends meet, as well as to the non-regular employees on whom the current employment adjustment has fallen the hardest; this could be known as "Fund for the General Support of Non-regular Workers". At the same time, to secure reliable sources of demand for labor it will be important to implement programs that will bring relatively quick benefits (human service industries and human resource creation programs) in parallel with longer-term programs (local community-led projects for the creation of new industries and employment).

By way of structural measures, there should be (i) structural reforms of industry with a view to reducing economic dependence on external demand and the automotive industry (a basic condition for the regeneration of employment), (ii) an integrated reform of tax systems, social security and the minimum wage (the re-erection of a safety net), (iii) a review of rules and regulations governing the labor market with a view to resolving the dual structure of regular and non-regular workers, and (iv) a reform of Japan's "vertically integrated labor market", involving a rethink of mass graduate recruitment. Japan should see the current employment crisis, if anything, as an opportunity to reshape its labor market into a form more suited to current economic conditions.

For more information on the content of this report, please contact Hisashi Yamada, the Japan Research Institute, Limited.

Tel: 03-3288-4245
E-mail:yamada.hisashi@jri.co.jp

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