Japan labor shortage prompts shift to hiring permanent workers

Temporary hiring blamed for sluggish consumer demand

by Yoshiaki Nohara, Bloomberg, May 1, 2017

Japan’s tightest labor market in decades shows signs of reversing a long shift toward the hiring of temporary workers.

The number of full-time, permanent workers is rising for the first time since the global financial crisis, outpacing growth in temporary jobs over the past two years.

“The labor shortage has become so bad that companies can’t fill openings only with part-timers,” said Junko Sakuyama, Tokyo-based senior economist at Dai-ichi Life Research Institute.

Japan’s 2.8 percent unemployment rate is the lowest since 1994 but most of the hiring over the past decade or so has been for temporary, often part-time positions, known as non-regular.

A shift back toward permanent hiring could help sluggish consumer spending pick up. Economists say a decades-long move toward non-regular jobs is partly to blame for weak consumer demand. Non-regular workers now make up more than a third of the workforce. Many work part time, and all on average receive less pay, few benefits, little training and no real job security.

It’s too early to declare a trend reversal, but the number of regular jobs grew by 260,000 in March from a year ago, while part-time, temporary and contract jobs rose by 170,000, the internal affairs ministry reported on Friday. Last year, 510,000 permanent jobs and 360,000 non-regular ones were added.

Women Workers

The ratio of non-regular workers in the workforce stood at 37.5 percent in 2016, the highest on record dating to 2002, according to government data. It should decline as more women become regular employees in sectors with severe labor shortages such as retail and elderly care, Sakuyama said.

The impact on wages and consumer spending could be limited. Those sectors hiring more regular workers offer lower pay and suffer from lower productivity, meaning they have narrower margins to grant raises. A return of inflation this year will limit real wages, too.

Regular workers get paid about 53 percent more than non-regular ones on a comparable monthly basis, according to the labor ministry. But they’ve seen slower pay increases because the unions representing them often favor job security over aggressive bargaining.

Companies are adding regular jobs only grudgingly and are reluctant to give big raises because growth prospects are dim in aging Japan, said Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance Co. “Businesses tell me that they can’t raise wages a lot in order to compete, which means demand isn’t picking up,” he said. “They can’t hope that domestic demand will grow strongly.”

The job-to-applicant ratio remains much higher for part-time jobs than for regular ones, indicating that employers still want this, but workers are less enthusiastic about this option.

While an increase in regular jobs is good, another challenge for Japan is to ensure equal work for equal pay, so regular workers feel freer to move to growing sectors and get compensated on merit and skills, Sakuyama said.

“It will be right and ideal if it becomes meaningless to track the ratio of non-regular workers,” she said.