Japan Considers Ban on Temporary Workers

During the campaign leading up to Japan’s general election earlier this year, the underdog Democratic Party of Japan pledged that should it gain power, it would increase the ratio of full-time workers by outlawing the practice of hiring part-time workers. After wresting control from the ruling Liberal Democratic Party on August 30th, the new government signaled today that it is now ready to make good on its commitment to limit part-time hiring.

According to Japan’s Health and Labor Minister Akira Nagatsuma, the government is currently working on legislation designed to “stop manufacturing firms from employing temps and encourage them to hire full-timers”.

The hiring of part-time workers has been a contentious issue in Japan since regulations were eased in 2004, paving the way for companies to replace retiring full-time workers with less costly part-time positions. Those in favor of allowing more part-time hiring, point to the increased flexibility this has afforded manufactures as one of the reasons Japan has been able to cope with simultaneous deflation and an appreciating yen.

On the other hand, opponents to the use of temporary workers believe the practice has created two classes of workers – older, full-time workers who enjoy better pay and a wide-range of additional benefits; and younger workers who receive lower pay due to their part-time status, and are almost completely shut-out from the employee benefits available for full-time workers.

Despite this reality, businesses have told the government that eliminating the ability to hire part-time workers to deal with changing business needs, will force companies to limit hiring, and will actually be more detrimental to overall employment levels. In July, Japan’s unemployment rate hit 5.7 percent, the highest the rate has been since the end of the Second World War. Unemployment has fallen somewhat since then to 5.1 percent in October, and businesses point to this as proof that hiring a mix of full and part-time workers is the best way to deal with Japan’s unusually high unemployment.

Japan’s economy is highly dependant on exports and as is often the case, labor costs are a big part of the cost of producing any product. As other Asian countries gain greater expertise in manufacturing – especially in the electronics and automotive industries – Japan faces growing pressure, and the fact that the yen has appreciated just over 9 percent against the US dollar in the past nine months, only adds to this pressure.

The other area that will suffer under the new proposal according to corporate spokespeople, is Japan’s vaunted productivity. Japan’s manufacturers argue they need the ability to hire people on a part-time basis in order to deal with constantly fluctuating demand. If required to hire full-time people only, manufacturers say they will be forced to leave orders unfilled for want of sufficient temporary workers to meet varying production cycles.

Despite these arguments however, the government said that it intends to table a new bill outlawing temporary hiring to Parliament in January.

Dollar Yen Historical Highlights

  1. 1949 – The yen is first pegged to the US dollar and remains pegged until the US abandons the gold standard in 1971.
  2. 1970s – Japanese government engages in open market intervention to keep the yen devalued as a way to boost the competiveness of Japan’s exports.
  3. 1980s – A growing differential between the zero-bound interest rates in Japan and higher rates in the US, leads to the rise of the Yen-based carry trade. Currency traders sell yen and use the funds to buy and hold the much higher-yielding US dollar.
  4. In November 2009, the dollar falls to a 14-year low of 86.28 yen to the dollar.

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