【No.8】May 2013

Diversification of Modes of Workwill Create a New Safety Net
Noriyuki Yanagawa
Executive Vice President, National Institute for Research Advancement (NIRA)
Professor, Graduate School of Economics,The University of Tokyo

Does Full-time Employment offer Security?
What modes of work should we look to , in order to ensure security and peace of mind? Consider thismodel: A person graduates from school and joins a company for which he or she works continuously as afull-time employee, salary increasing with years of service. If by some chance that company becomesbankrupt and this person loses their job, they will be protected by generous social security benefits. The
ideal that Japan has sought up to the present is a society in which each individual is secure in their work,
centering on this image of the “full-time employee.”
However, is this realistic? Will continuing to work for one company really guarantee one’s security into
the future? How secure does being a full-time employee make one?
Today, the environment in which Japanese companies operate is undergoing significant changes, andlarge corporations are not exempt from these changes. Not long ago, few people could have predicted theextent of the sales slump that would occur in the television manufacturing industry, and the difficulties thatJapanese electronics makers would face as a result. The main factors in the present changes in the businessenvironment are structural changes in the global economy and changes in the speed of business due to theadvancement of IT. The rapid economic development of emerging nations is serving as the central driving
force in a massive reorganization of the entire global economic structure. No matter how outstanding therecord of a Japanese company, we should not be surprised if it faces a business crisis if unable to respond tothese changes. In addition, the development of the IT industry is also accelerating the speed of change inindustries other than the IT industry itself. Given this, it is likely that no matter which industry one works in,in future the knowledge and abilities required will change at a fairly rapid pace.
Amid these changes, no matter how firm a company’s business foundations, it will be unable toguarantee security for decades ahead. In fact, companies will not even be able to maintain the ability toretain large numbers of full-time employees as their workplaces close down (Figure 1).
This means that from now on, when we consider the appropriate direction for society and modes of work
which offer a sense of security, we must assume the possibility that even the biggest companies might facerestructuring or bankruptcy. In fact, many people in Japan are already aware of this possibility. Middle-aged
and elderly full-time employees of large corporations are already facing the prospect of the restructuring or
future bankruptcy of their companies due to a slump in their profits.
We must ask, then, whether the unemployed who will be produced by this restructuring and bankruptcy
can be supported by social security. Looked at from the perspective of individual workers, generous social

security benefits are a desirable thing. However, this cannot be considered a realistic solution in thesefinancially straitened times. Against the background of population decline and a significant consequentdecline in the working population, there is simply no margin to enable a large population of theunemployed to be comfortably maintained in unemployment.

Figure 1 Trends in number of employees by industry for Japan(Note) For each industry, the number of employees in 1980 is considered as 1.
(Source) Based on Cabinet Office statistics for gross domestic product classified by economic activity.

Flexible Employment Conditions able to respond to Changes are Essential for Society as a Whole
Under these conditions, what is demanded is the creation of a safety net which does not rely upon
employees clinging to their companies, which are after all inherently unstable entities, but which rather
functions flexibly in response to the specific environment in which each individual finds him or herself.
In order to achieve this, it will be essential to create structures, not only within companies, but
throughout society as a whole, ensuring that people of all ages have access to the type of knowledge andskills required at any given time. And in addition, it will be necessary for us to create a society that will
enable individuals to choose the right workplace and mode of work for their specific age, and to be securein their lifestyle, even if they do not continue to work for a single company for an extended period.

2

Japanese Society must diversify its Modes of Work
The “full-time employee” mode of work which has held sway up to the present is inherently one-sided,and cannot be considered to be suited to contemporary society, with its diversification of value systems.
Unless we increase the diversity of modes of work, we will not be able to realize labor and lifestyle choices
which are suited to the individual.
For example, an increased rate of establishment of venture businesses will be essential for Japan in future.
And in addition to this increased activity on the part of for-profit venture businesses, it is also likely that the
number of people wishing to work for non-profit organizations (NPOs) and non-governmentalorganizations (NGOs) which seek to contribute to society will increase (Figures 2 and 3).

Figure2 Role of venture companies in U.S. labor marketb) Employment by venture companies
as percentage of total private sector employmenta)Trends in number of employees(Source) Based on data published by the National Venture Capital Association and U.S. employment statistics.

Figure 3 Salaried employees of non-profit sector as percentage of total working population
Country
Holland

Percentage
Country
9.21% Australia

Percentage
Country
4.43% Norway

Belgium

8.62% Austria

3.84% Finland

2.42%

Ireland

8.28% France

3.70% Italy

2.26%

Israel

6.61% Germany

3.54% Sweden

1.74%

U.S.A.

6.28% Japan

3.19%

U.K.

4.84% Spain

2.82%

Average ofadvancedcountries

Percentage
2.69%

4.65%

(Notes) 1. Religious organizations are not included. 2. 1995-2000 data is employed.
(Source) Based on data published by the Johns Hopkins University Center for Civil Society Studies

3

Venture businesses do not simply advance innovation, but are also important in expanding employment 1.
Even if each company employs only a limited amount of people, assuming that one company creates
employment for 10 people, the number of jobs created will be 10 times the number of companies; thelaunch of a large number of companies would therefore have a significant impact on employment. However,in Japan at present the psychological hurdles to establishing a venture company upon graduation fromuniversity are fairly high. Venture companies are inherently risky, and the fact is that many ventures fail.
However, in Japan’s employment system, focused as it is on full-time employment, it is difficult forindividuals who have tried and failed to then find employment in a normal private sector company.
In addition, rather than continuing in operation indefinitely, it is not uncommon for NPOs and NGOs toterminate their activities when the social problem which was their focus has been resolved to some extent,
and to then move on to different activities. It is also rather difficult for ex-employees to find further
employment in this situation.
Taking these facts into consideration, in attempting to actively support venture businesses andNPOs/NGOs, it will be crucially important to ensure that ex-employees will be able to find anotherworkplace or another satisfying arena for their activities if the venture fails or the NPO/NGO ceases
operation. If this is not the case, many individuals will be averse to risk, and will not take up the challenge
of venture businesses or NPOs/NGOs, or, assuming that they do establish a business, will restrict
themselves to an extremely narrow range of activities. We must revise the structures that insist that a modeof work is not “regular” or “legitimate” unless it involves ongoing employment with the same company,
and create greater diversity in terms of modes of work and periods of work.
The necessity for child-raising and homecare represents another major point (Figure 4). In a societyfacing population decline, it is absolutely essential that we create an environment in which it is possible forparents to raise children in the manner they desire, and which ensures at the same time that both parents areable to work without sacrificing their ability to contribute to the raising of their child2. To this end, it will benecessary to create a society in which a parent is able to return to satisfying employment even after raisinga child to the age of six, the age of entry to elementary school, or 15, the age at which schooling is nolonger mandatory, and to provide mechanisms that ensure that such life choices andmodes of work arealso considered to be “regular.”
An increasing number of employees will also face the necessity of taking leave from their employment
in order to provide home care as Japan’s population ages3. Where this type of care differs from child-raising
is in the fact that the period for which it will continue is not known. Given this, many individuals facing theissue of home care have no choice but to give up their employment rather than taking leave. If these people
are unable to find reemployment after an extended period of absence from work, it will represent a
considerable loss for society in a situation in which the working population is declining.

4

Figure 4 Reasons individuals wishing to work do not seek employment (By age)

(Source)

Based on data in Employment Status Survey (2007),
Published by Statistics Bureau, the Ministry of Internal Affairs and Communications

Misconceptions in relation to Limited Term Employment
One problem of the current system is the fact that

employment contracts which are regarded as“regular” are contracts which do not stipulate a time limit for employment. This fact can be considered tobe relatively reasonable if one regards lifetime employment as the only normal mode of employment.
However, if the diversified modes of work discussed above also come to be regarded as normal modes ofwork, then clearly it will be necessary for our thinking to encompass more diverse forms of “regular”
employment.
Under the present circumstances, changing companies is a considerable risk, and the majority of
employees are therefore in a position in which they must cling to their position in their present company(even if, for example, they face risks from restructuring or the bankruptcy of the company).
The accelerating pace of change in the social and business environments brings with it the increasing
possibility that skills and knowledge that have been serviceable up to the present will rapidly become
obsolete. There is an increasing risk that abilities which have previously been functional will not be usefulin the society of the future. If we grant this, then it is surely clear that relying exclusively on one’s present
company is no fundamental guarantee of security. In addition, if employees continue to rely exclusively on
individual companies, those companies will be forced to continue to guarantee high wages to large numbers5

of employees, thereby increasing their risk of bankruptcy or restructuring.
In order to correct this situation, it will be essential to ensure that employees are able to acquire theabilities which will enable them to respond to their new environment when they seek employment in a newcompany, and for this it will be necessary to provide opportunities even for relatively elderly employees toacquire useful knowledge and skills. This must be the nature of the social safety net from now on.
In major companies, this type of thing is already happening in the form of employee education andtraining. However, this is clearly not enough. Considering Japan as a whole, the number of companies able
to conduct this type of training is extremely limited, and the economic margin enabling it to be provided issteadily declining even at major companies. Another problem is the fact that education and training
provided by existing companies is limited to the provision of knowledge and the development of skills
related to the existing industry.
At present the full-fledged development of an employee’s skills occurs perhaps between the ages of 35
and 40, but against a background of extensive social change, it will be essential for employees to continue
in productive employment until the age of 75. Ideally, what is necessary is a system enabling workers tofundamentally renew their skills and knowledge at any age.

Towards Limited Term Employment as “Regular” Employment
The use of limited term employment contracts does not necessarily imply a mode of work corresponding
to irregular employment today. We should ensure that it will still be possible to establish long-term
employment contracts or continuing employment contracts.
The problem with regard to irregular employment as it exists today is not that it is limited-term, but thatit represents a significant restriction on the establishment of continuing employment contracts. Because ofthis, there is a conspicuous decline in incentive to increase employees’ skills on the part of employers.
Employment contracts which do not specify time limitations are regarded as “regular”; if ongoing
employment was offered to an irregular worker, there would be a feeling that their status should be
regularized. However, because in reality there is a considerable gap between ongoing irregular employment
and “regular” unlimited term employment, most companies choose not to regularize the former, and as aresult the employment is not ongoing and the employee does not develop skills.
However, if we examine whether there is sufficient development of skills even among employees
engaged in regular employment, we once again find considerable cause for doubt. Many companies arefacing declining margins, and in circumstances in which it is not clear when even regular employees will
leave their employ, more than a few are forgoing large-scale investment in their employees.
We can therefore no longer content ourselves with the simplistic view that limited term employment
presents issues which do not exist in the case of unlimited term employment. What is necessary is to createa society in which, no matter what the type or period of employment, the employee is able to acquire skills

6and gain abilities which will serve him or her well in the future.
Overall, in today’s Japan, investment in increasing skills is being handled rather poorly. The situation as
it is makes it impossible to respond to changing social and business environments. Before this results inmajor problems, we must be more proactive in preparing the ground for a system enabling working
individuals to receive further education.

Enabling the Extension of Comparatively Long-term Limited Term Employment Contracts
In order to do so, it will first be necessary to construct a system enabling the unproblematic extension ofcomparatively long-term limited term employment contracts. As part of this, it will be essential to establish
a very carefully elaborated system enabling further education and the acquisition of new skills. It would be
virtually impossible to accomplish this within the confines of individual companies. It will also demand theactive use of education provided by universities, graduate schools, and other educational institutions.
Today, Japan’s declining birthrate is making it difficult for any university to ensure a sufficient numberof students. Under these conditions, the idea of accepting middle-aged and elderly individuals for further
education and assisting them in the development of appropriate skills and abilities should have considerable
merit for universities. If individuals who had previously developed skills while working for companies
were employed as teachers and in other educational positions, the system would also function as a direct
stimulus to employment.
Naturally, it would not be desirable for all development of skills to take place outside the company. To
some extent at least, there are abilities which it is not possible to acquire without working in a company,and fields in which it is necessary to gain experience in a company. From this perspective also, it will beessential to allow diverse modes of work, such as employment for a trial period, or temporary dispatch toanother workplace at the request of the employee.

Creating a Standard Flow for Employment Contracts
Even under the present circumstances, it should be possible for individuals who feel the necessity to do
so to quit their jobs, no matter what their age, and reenter university in order to seek new skills. However,to leave work and return for further education on one’s own initiative, while the majority of other people
continue working, involves considerable costs, including the psychological resistance entailed. In order topromote such major lifestyle changes in Japanese society as a whole, it will be necessary to introduce acertain measure of systematization, and to create mechanisms which encourage the majority of people totake such a course.
One measure which might be considered as a response to this issue is to treat employment contracts

7which do not specify a time limit as 20-year contracts; if the continuation of employment over a longer
period, for example 40 years, is judged to be necessary, this could be organized on the basis of an explicit
long-term limited term contract. If the use of a cutoff point of 20 years became part of the standard templatecontract (the default contract), it might be possible to create a basic employment structure of 20 years of
employment followed by reentry to education, enabling large numbers of people to leave work to learn new
skills without any psychological resistance. However, education entails expenses, and in the short term it
might be necessary for the government and private companies to bear the burden of these educational
expenses to a certain extent. However, prior to this, it would be essential to expand the range of educational
institutions and educational opportunities, as indicated above. If 20 years was also regarded as the standard
cutoff point for reentry to education on the side of the providers of educational programs, we could expect amarket of considerable size to develop, making it easier to offer programs.
Naturally, it would also be possible, if both sides involved were in agreement, for an employee to extend
their term of employment rather than taking the opportunity for further education. It should also be notedthat the scheme under discussion here is not intended to rule out the possibility of long-term employment
for 30 or 40 years from the very beginning. Limited term contracts would simply be effective for the period
stated in the contract, and continuing employment should also be recognized under this system.

The Ultimate Purpose is to enable Every Person to Work with a Greater Sense of Engagement
The adoption of a scheme of this type would make it possible to create a foundation enabling workers to
select the workplace that they consider desirable between the ages of 20 and 40, 40 and 60, and 60 and 75.
At the risk of repetition, I am not suggesting that this necessarily means that at the end of each specificperiod it would be necessary for workers to change their places of work, or to find a new job. Depending on
the workplace, and depending on the type of work, there will of course be cases in which it is desirable
both for an individual worker and for society that the individual continues doing the same job in the sameplace until the age of 75. I am not suggesting that in such cases workers should be forced to change theirjobs.
However, realistically speaking, it is also a fact that large numbers of workers desire to change theirplace of work, their mode of work, or their skills for a variety of reasons; perhaps their workplace no longer
suits them, their skills no longer suit their working environment, or they simply want to do a different job.
It is necessary to break out of the present situation, in which such people stay where they are and maintainthe status quo due to anxiety over change. Offering these people the type of workplace that they desire, andcreating an environment enabling them to pursue the work that they choose with a greater sense ofengagement: This is the type of safety net that the government should provide. If it is not provided, thenJapan’s working population will decline rapidly, and we will be unable to realize a vigorous andforward-looking society.

8Notes
1．A presentation by the Ministry of Economy, Trade and Industry at the 2nd Roundtable on the Green Sheet
Market of the Japan Security Dealers Association indicated that the number of employees employed by
venture companies in their initial start-up phase had increased significantly, and was having a considerable
job-creation effect.
2．According to a 2011 Tokyo Metropolitan Government survey looking at responses to the Equal Employment
Opportunity Law and the Revised Child Care and Family Care Leave Law and other aspects of corporate
employment management for male and female employees, only about 25% of workplaces are fully provided
with the maternal protection systems stipulated by the Labor Standards Law and the Equal Employment
Opportunity Law. The survey also found that 80% of workplaces do not encourage male employees to takechildcare leave, and almost 60% do not provide support for female employees who have taken childcare
leave to return to work.
3．The same survey also indicates that nearly 40% of workplaces have employees with family members requiring
care.

Profile of Noriyuki Yanagawa:Vice President, National Institute for Research Advancement (NIRA), 2007-present.
Professor, Graduate School of Economics, the University of Tokyo.
Ph.D. in Economics form the University of Tokyo. Major research fields in financial contracts, law andeconomics.

9

What’s NIRA?

The National Institute for Research Advancement (NIRA) is anindependent, private-sector research institute which defines urgent
policy issues and formulates bold and timely policy proposals, seeking tocontribute to the revitalization and further development of Japanesesociety and the Japanese economy.
Utilizing a network of scholars, researchers, and specialists in a wide
range of subjects, NIRA works for the public benefit from a fair andneutral perspective, attempting to reinvigorate policy debate andcontribute to the process of policy formation in Japan. The institutefocuses on domestic social and economic policy, international relations,and regional issues in Japan as its principal areas of research.
Established in 1974 as a government-authorized independent
research institution, NIRA became an incorporated foundation in 2007,
and since February 2011 has been recognized as a Public Interest
Incorporated Foundation.

National Institute for Research Advancement (NIRA)
4-20-3 Ebisu, Shibuya-ku, Tokyo 150-6034, Japan(URL:http://www.nira.or.jp/english/)
For more information： info@nira.or.jp
Tel +81-3-5448-1735

Fax +81-3-5448-1743

Copyright Ⓒ 2013 by National Institute for Research Advancement

10