In Japan, secure jobs have a cost

Because of government subsidies, Taruki in the last three months installed rows of parsley, watercress and other plants, using factory space that has been empty since the company disposed of unused machinery. High Metal’s staff tend the sprouts religiously, topping up the water supply, adding fertiliser and adjusting the fluorescent lights.

When sales at the machinery maker Shinano Kogyo in central Japan plunged some 70 per cent late last year, the company started dispatching its idle workers to sweep the streets and pick up trash in the wider community, while remaining on the payroll.

According to statistics released on Wednesday, the Japanese economy suffered its worst contraction since 1955 in the first quarter, declining 15.2 per cent on an annualised basis. But a far smaller portion of workers have lost their jobs in Japan than in either the United States or the European Union. (Japan’s unemployment rate in April was 4.8 per cent, compared with 8.9 per cent in the United States and Europe.)

Lifetime employment

Analysts say this is because lifetime employment is alive and well in Japan, with the state playing a big role in keeping it so. “Job tenure in Japan remains remarkably long. Companies get rid of the buffers first.

 They’ll get rid of temporary workers, reduce overtime, reduce bonuses. They would squeeze their suppliers. They would do anything before considering cutting regular workers,” said Peter Matanle, an expert on Japanese employment at the University of Sheffield in Britain.

But Japan’s obsession with keeping workers employed — even those who are not needed — comes at a cost. Companies slash wages, which reduces consumer spending. Businesses become more reluctant to take on new recruits, shutting young people out of the labour force. And productivity plummets, hurting Japan’s competitiveness in an increasingly aggressive international market.

“By helping to maintain excess employment, you face the risk of keeping alive businesses that are no longer competitive, and perhaps whose productive era is over. This could hurt employment in the long run. What you need is more structural change,” said Hisashi Yamada, an economist at the Japan Research Institute, a private research group in Tokyo.

The lifetime employment system, cemented in Japan’s postwar economic boom, bound dutiful workers and paternalistic employers together, producing a mutual loyalty (and labour harmony) rarely seen in the West.

By law, employers can cut workers’ hours but must pay at least 60 per cent of their hourly wages during that time. The government has budgeted 60 billion yen, or about $624 million, this year to reimburse companies for half of those payments. In March, about 48,000 companies sought subsidies for 2.38 million employees, government figures show.

Even large exporters, like Nissan Motor and NEC Electronics, have used the subsidies to keep workers employed despite shorter factory hours. In a recent survey by the Nikkei financial daily, zero percent of large business owners said they had plans to lay off permanent staff members, compared with 39 per cent in South Korea. Experts say that without subsidies, Japan’s unemployment rate would be as much as 2 percentage points higher.

Temporary workers

Since Japanese workers are hard to lay off, companies have turned to temporary workers, who receive lower pay and fewer benefits, and can be cut more easily. Such workers now make up a third of Japan’s work force. But keeping all those permanent staff members occupied is its own challenge.

Taruki’s factory has been abuzz with activity over the vegetable garden. Using another government subsidy, Taruki spent 5 million yen to start a handicrafts workshop, installing a laser etching machine in a tiny room that had housed employee lockers.

There, an employee practiced etching patterns onto lacquerware boards, small sheets of glass and other materials. The company wants to make key chains and other trinkets, and is exploring ways to make ornaments for Buddhist altars.

Protect jobs

“Even if the economy starts recovering, I’m doubtful whether we’ll ever bounce back entirely. So I need to start filling in what we’ve lost. It’s the responsibility of companies to protect jobs, to grow them,” said Taruki, whose grandfather started the factory in Osaka decades ago. But some analysts wonder whether the recession will be so bad that Japanese companies will have to eventually start cutting regular workers.

labour leaders say cases are increasing in which employees are subjected to such humiliating wage or hour cuts, or demotions, that they are driven to quit. Some analysts say a cold-eyed look at bloated payrolls is just what Japanese companies need.

 “Companies have hardly shed workers so far in this episode. Massive layoffs are imminent, but they won’t come soon enough,” Carl B Weinberg, who runs the economics analysis firm High Frequency Economics, said in a note to clients this month.