J A PA N L A B O R B U L L E T I N
ISSUED BY THE JAPAN INSTITUTE OF LABOUR
September 1, 2002 （毎月1回1日発行）

昭和44年10月8日

第3種郵便物認可

http://www.jil.go.jp/bulletin/index.htm

Vol. 41 — No. 9

September 2002

CONTENTS
Human Resource Management
Outplacement Firms Expand Role: JIL Survey
Most Firms Select which Workers They Will Keep after Retirement
Two-thirds of Firms Conduct Training Off-site
Labor-Management Relations
Many Young Union Members Not Interested in Leading Position
Rengo Will No Longer Set Basic Pay Raise

4
5

Special Topic
Does the ¥1.03 Million Tax Exempt Limit Depress the Hourly Wageof Part-time Workers?
Wife Allowance and Tax Exemption behind Low Wages for Part-time Workers

68

FeatureThe 2002 White Paper on the Labour Economy: A Summary of the Analysis
A View of the 2002 White Paper on the Labour Economy

10
14

JIL News and Information
Survey on HRM in Japanese-affiliated Enterprises Abroad (Part 1)

15

1
2
4

labor cuts in Japan, another 25.4 percent were in processof doing so, and nine percent had plans to do so in future,
showing that about half of all the companies surveyed
had engaged in reducing their work force.
The majority of companies used attrition to cut backtheir labor force (81.6%); this was followed by the 76.9
percent that reduced their number of new hires, and onethird, or 34.2 percent, called for voluntary retirement, or
setting up or expanding schemes for early retirement withspecial treatment. A mere 6.9 percent resorted to layoffs.
(Multiple responses were possible.)
Concerning the effects of labor shedding, 51.5 percent
noted a drop in employee morale and 45.8 percent reported an increase in working hours for the remaining workers, followed by improvement in worker productivity(35.9%) and quality workers were leaving the company(33%).
The most common criteria for voluntary or early
retirement with special treatment were age (74.6%) andtenure (33.1%). More than 90 percent of the firms includ-

HUMAN RESOURCE MANAGEMENT
Outplacement Firms Expand Role: JIL Survey
A recent Japan Institute of Labour survey has foundthat more than half the firms with 300 or more employees
have carried out labor shedding or other restructuring
measures in the last three years, and that 60 percent of
the employees who left such firms through early retirement schemes made use of private outplacement companies to find re-employment.
Conducted in January and February 2002, the Survey
concerning Business Restructuring and Employment consisted of two parts: the first targeted 10,761 firms, and thelatter five regular employees who were hired by each ofthese firms in the previous year after retiring early fromanother company. Usable replies totalled 1,683 for thecompany survey and 2,693 for the employee survey.
The company survey revealed that in the last three
years 17.5 percent of the firms surveyed had carried out-1-

JAPAN LABOR BULLETIN September 1, 2002 第3種郵便物認可

new jobs. Only a small proportion relied on their own
companies for counselling (19.1%) or job introductions(14.9%). On average, most workers underwent counselling or job introduction help for 4.4 months. The mostcommon method for finding new jobs was through job
advertisements (25.1%), followed by notices at the Public
Employment Security Offices (23.2%), and via businessacquaintances or personal friends (18.9%). A mere 7.4
percent found jobs via their previous employer.
Switching jobs affected the wages of the majority of
those surveyed. The highest proportion, 23.5 percent,experienced a reduction from 10 percent to 30 percent,19.7 percent said their income remained the same, and18.9 percent saw an increase from 10 to 30 percent.
About 70 percent of these workers felt satisfied with
their current jobs, with 43.6 percent being more or lesssatisfied and 24.7 percent very satisfied. The larger thefirm they joined, the more satisfied they felt. Those who
found their new job via a business acquaintance or personal friend, or through private outplacement companies
were more likely to feel satisfied with their current job.

ed payment of an extra retirement allowance, as well as(i) contracting out counselling on, and introducing job
searching to outplacement companies, (ii) providing special holidays, and so on. In terms of the number of
employees who applied for such programs, 36.5 percentof the firms reported they had almost as many applications as expected, 14.0 percent had more applications
than expected, and 16.4 percent received fewer applications than expected.
Concerning responses from the workers, the overwhelming majority left their pervious job because theydecided they wanted to retire (71.1%), followed by bankruptcy or business failure (6%), and expiry of labor contract (5.7%).
The reasons why employees applied for early retirement with special treatment included concern over the
future of the company (38.7%), a good opportunity totake on a new job (37.9%), because the special treatment
was generous (27%), and because the company recommended that I do so (25%). Among those who quit theirprevious job under the scheme, 53.7 percent had nointention of leaving the company before it called for early
retirement, and 39 percent had previously been planningto do so. Almost half (43.5%) of those who applied forthese schemes had no new employment prospects when
they did so, followed by 28.2 percent who had almost
decided their next place of work. The average amount of
the additional retirement allowance was 15.2 times themonthly salary.
A majority of the respondents, 63.8 percent, reported
that they used private outplacement companies for counselling, and 36.2 percent used these firms to help find

Most Firms Select which Workers
They Will Keep after Retirement
In April 2001, the minimum age at which one receives
some part of their public pension was raised from 60 to
61. However, the findings of the fiscal 2002 Survey on
Employment Management conducted by the Ministry of
Health, Labour and Welfare showed that not all firms
extended the employment of their workers 60 years old
and older in line with the change in the public pension

Statistical Aspect

Recent Labor Economy Indices

Labor force
Employed(1)Employees(1)Unemployed(1)Unemployment rate(1)Active opening rate(1)Total hours worked(2)Monthly cash earnings(2)June 2002

July 2002

6,741 (10 thousand)
6,373
5,348
368
5.4%
0.53
156.3 (hours)
468.0 (¥ thousand)

6,725 (10 thousand)
6,374
5,379
352
5.4%
0.54
158.3 (hours)
410.5 (¥ thousand)Change fromprevious year (July)-58 (10 thousand)
-78
-11
22
0.5
-0.06
0.8
-5.2

Notes: (1) Seasonally-adjusted figures.
(2)
Figures refer to establishments employing five or more people.
Figures for July are preliminary (excluding those for the “Active opening rate”).
US$1= ¥118 (September 2, 2002)- oryoku- (Labour Force Survey); Ministry ofSource: Ministry of Public Management, Home Affairs, Posts and Telecommunications, Rod
Chosa- (Report on Employment Service), Maitsuki Kinro- Tokei- (Monthly Labour Survey).
Health, Labour and Welfare, Shokugyo- Antei Gyomu
Tokei

-2-

第3種郵便物認可 September 1, 2002 JAPAN LABOR BULLETIN

employment (for details, see the March 2000 issue of theJapan Labor Bulletin), and major machinery and metalcompanies also are adopting similar schemes.
Employment extension means that firms continue toemploy an employee even after they have reached the
mandatory retirement age. Re-employment schemes
involve situations where a firm rehires an employee after
he/she has retired. According to the survey, 71.0 percentof the firms surveyed had either an employment extension or re-employment scheme; of these 14.7 percent
adopted only the employment extension scheme, 42.6
percent implemented the re-employment scheme, and13.7 percent had both in place.
However, where eligibility for these schemes is concerned, the largest proportion of the firms restricted thisto “employees whom the firm considers to be necessary”(61.5% of the firms with an employment extension
scheme, and 62.3% of those with a re-employment
scheme). The percentage of firms which made theschemes open “in principle, to all who apply” was a mere
26.2 percent of those with an employment extension
scheme and 21.5 percent for those with a re-employment
scheme, giving the impression that, despite raising theminimum pensionable age, firms still have a strong tendency to “pick and choose” among workers eligible forsystem.
The survey targeted some 5,800 private firms with 30
or more regular employees; usable replies were received
from 73.9 percent.
Payments under the Employees’ Pension Plan — apublic pension plan for salaried employees at privatecompanies — consist of a fixed portion and a salarylinked portion. The age at which one can begin to receive
the fixed portion of the pension is to be gradually raised
from 61 to 65 between 2001 and 2013 (2006 and 2018
for females). Males who turned 60 after April 2001 arealready feeling the effects of this new regulation. In addition, it has been decided that the minimum pensionable
age for the salary-linked portion will be shifted graduallyfrom 61 to 65 between 2013 and 2025.
According to the survey, almost all firms, 96 percent,have a uniform mandatory retirement age: 90.3 percent
have set it at 60; 2.3 percent at 61 to 64; and 6.8 percent
at 65 or above. Since fiscal 1998, if firms had a mandatory retirement age, it had to be set above 60, and mostfirms do so. A pressing issue for employees, therefore, isto continue working until they can begin to receive theirpension benefits.
In this context, major electric manufacturers promptly
adopted schemes to extend employment and for re-

Statistical Aspect

Eligibility for Extension Employment Scheme(%)
Eligibility

Firm size(no. of employees)

Ratio of firms
with scheme

5,000 or more
1,000 to 4,999
300 to 999
100 to 299
30 to 99
Total

7.4
13.1
15.3
23.3
32.1
28.4

All who apply, inprinciple
8.3
13.1
11.6
18.5
29
26.2

Employees whomeet the criteria
29.2
27.1
11.6
17.5
9
10.8

Employees the firm
considers necessary
62.5
59.9
74.2
62.9
60.5
61.5

Others
2.6
1.1
1.5
1.5

Eligibility for Re-Employment Schemes(%)
Eligibility

Firm size(no. of employees)

Ratio of firms
with scheme

5,000 or more
1,000 to 4,999
300 to 999
100 to 299
30 to 99
Total

72.7
66.4
61.9
62.3
53.4
56.4

All who apply, inprinciple
17.7
11.5
11.9
18.1
24.4
21.5

Employees whomeet the criteria
26.6
22.6
15.3
18.1
14.1
15.4

Source: Ministry of Health, Labour and Welfare, 2002 Survey on Employment Management.

-3-

Employees the firm
considers necessary
51.9
64.1
71
61.9
61.3
62.3

Others
3.8
1.8
1.7
1.9
0.2
0.8

JAPAN LABOR BULLETIN September 1, 2002 第3種郵便物認可

easier for workers to spend time training.”
The proportion of the workers surveyed who hadreceived Off-JT was 35.4 percent; broken down by gender this represents 38.8 percent of the male respondents
and 27.3 percent of the female. In terms of educational
level, 31.3 percent were junior high or high school graduates, while 45.1 percent were university or graduate
school graduates of science courses.
The proportion of those who worked toward bettering
their skills on their own was 37.3 percent. The most common methods were studying through radio, TV, technicalbooks, the Internet and so on (41.0%); followed by participating in courses or seminars run by private educationand training organizations (24.1%); participating in study
or research groups outside the company (21.4%); andparticipating in voluntary study or research groups within
the company (18.5%), (multiple answers possible).
Asked about the problems they encountered when trying to pursue self education programs, the largest proportion, 43.0 percent, felt they were too busy to spare timeon self-improvement, followed by those who felt it cost
too much (25.9%), and those who found it impossible topursue because of the inability to take days off or leave
the office early (18.3%), (multiple answers possible).

the schemes.
Two-thirds of Firms Conduct Training Off-site
According to a survey conducted in fiscal 2001 by the
Ministry of Health, Labour and Welfare, in fiscal 2000,
64.9 percent of firms with 30 or more employees conducted Off-JT (off-the-job training).
The Basic Survey on Ability Development is the successor to and an extended version of the Survey on
Education and Training in the Private Sector which was
conducted annually by the Human Resources
Development Bureau of the ministry. This new survey
plans to cover on a continuous basis wider issues related
to ability development. Where the previous survey targeted “establishments” with 30 or more regular employees,
the Basic Survey covers “firms” with 30 or more employees and thus the results are not comparable with theresults of the previous survey. The survey covered 10,000
firms in all industries across the country, and 30,000 of
their employees. (Usable replies were returned by 2,176
firms and 5,658 employees; 21.8 percent and 18.9 percent, respectively.)
The larger the firm, the more likely it was to conduct
Off-JT: 54.4 percent of the firms with 30 to 49 regular
employees, but 90.8 percent of those with 300 or moreregular employees. In terms of the most frequent Off-JT
employed (multiple answers), “private education andtraining organizations” (32.4%) and “parent or relatedcompanies” (17.7%) were used when emphasis wasplaced on the rank of employee; “specialized bodies
within the industry” (35.1%), and “private education andtraining organizations” (33.5%) where a particular skill
was in question; and “private education and training
organizations” (41.2%) and “specialized bodies within
the industry” (26.7%) where the purpose and nature of
the work were most important. Educational institutions
such as “technical and other schools” and “university andgraduate schools” were in all cases used by a mere one
percent of the firms responding. The direct cost borne byfirms for Off-JT averaged ¥24,600 per regular employee(for delegated training, participation fees, extramural andintramural personnel expenses).
The proportion of firms conducting OJT (on-the-job
training) in a systematic way was 41.6 percent. Hereagain, there was a gap between firms of different sizes:
31.4 percent of firms with 30 to 49 regular employees, asagainst 71.9 percent of those with 300 or more regular
employees.
Concerning assistance to employees who were pursuing additional training on their own, 60.5 percent of thefirms surveyed said they “financially supported theiremployees with fees for educational courses and thelike;” 46.3 percent “provided information concerning, forexample, training courses outside the company, correspondence training courses, and libraries;” and 33.9 percent “gave thought to working hours in order to make it

LABOR-MANAGEMENT RELATIONS
Many Young Union Members Not Interested
in Leading Position
The Labour Research Council, a body set up by
Rengo-affiliated unions, has compiled the results of asurvey conducted from October 2001 to April 2002 concerning the next generation of union leaders. The survey
targeted young union members in their 30s up to age 44
who are likely to be at the center of union activities within five to 10 years. Usable responses were received from
2,189 people. The primary interest among young union
members was in their work, and one-third answered thatthey had no wish to serve as an union executive.
Ninety percent of the respondents were men whose
average age was 33.6; the average age for women was
30.4. One-quarter of the men were blue-collar workers,
while the remaining three-fourths were white-collar or
clerical. More than half the respondents belong to unionswith memberships of 1,000 or more. A little more than 20
percent held the post of committee chairman or anothermajor position within their unions, and, together withthose engaged exclusively or mainly in union activities
accounted for one-fourth of all the respondents.
The most common reasons for taking up executiveroles in the unions (multiple answers allowed) included:
to be exposed to a broader range of information and opinions (58%), there was no reason to refuse (49.1%), toacquire abilities which are difficult to learn in the workplace (24.5%), and to reflect views from their own workplace in union activities (21.1%). Broken down by age,-4-

第3種郵便物認可 September 1, 2002 JAPAN LABOR BULLETIN

pay rise to maintain and improve the workers’ standard ofliving. As for the basic pay rise, the uniform target has
been set by Rengo (Japanese Trade Union Confederation)and other national centers used as criteria. Every year thecentral committee of Rengo decides the shunto policy forthe coming spring, then during the following February
unions submit their requests to management. In midMarch management in large firms responds, and in April
negotiations are concluded at major firms. Labor-management negotiations in small and medium-sized firms
lag behind those in large firms, not reaching settlements
until around May or June.
The nature of the shunto, which began in 1956, hasbeen changing since the mid-1990s when the after-effectsof the bursting of the “bubble” were first being felt. In
particular in 1995, the Kobe earthquake and the strong
yen hurt the public sector and manufacturing industries,
and began to undermine labor-management negotiations.
Around the same time, Nikkeiren (Japan Federation of
Employers’ Associations) started to press for a “structuralreform of shunto negotiations,” emphasizing the need for(1) wage determination at individual firms, (2) total labor
cost management and (3) ability- and achievement-centered wage determination. In fact, as seen in this year’s
negotiations at Toyota Motor Corporation where management proposed no basic pay rise, the current position ofmany firms is “to give priority to maintaining employment, and to offer a pay rise when it is affordable, but inthe form of bonus or lump-sum payments.” During thisyear’s shunto, in the middle of a deflationary economy,quite a few unions withdrew the demand for a basic pay
rise at the beginning of negotiations and, as seen in thedecision of Tekko Roren (Japan Federation of Steel
Workers’ Unions) and Denki Rengo (Japanese ElectricalElectronic & Information Union) to hold wage negotiations basically every two year, are aiming at a shift awayfrom the conventional shunto focusing on wage increases.
With the decentralization and transformation of theshunto, Rengo’s role is shifting in the direction of solving
common problems shared by all unions and workers. Inline with this, a Rengo central committee meeting heldon June 26 and 27 in Okinawa proposed that they will not
set a uniform basic pay rise going into the next shunto.
Instead, they plan to shift their focus to tasks shared byaffiliated unions, such as “improving working conditionsof part-time workers,” “stricter control over working
hours,” and “maintaining wage curves (the part representing regular wage increases).” They also plan to set up
new action policies in time for the October central committee meeting.
It will be interesting to see how far they are actuallyable to reflect the voice of workers in policies and systems at a time when union membership is dropping.

more than half of those 29 and younger reported that
there was no reason to refuse, whereas many people
between the ages of 40 to 44 said they wanted to improve
working conditions, indicating different perspectives byage.
Forty-five percent responded they “felt” or “more orless felt” a sense of fulfillment from carrying out theirunion activities, whereas 21.5 percent “were not fulfilled” or “were not really fulfilled.”
While about half were satisfied with their involvementin union activities, a somewhat different aspect was
revealed when asked if they wished to continue serving
as a union executive. Only 32.9 percent answered they
wished to continue or were willing to continue if no one
does, while 35.1 percent responded they didn’t know, andas many as 31.3 percent acknowledged they do not wish
to continue.
This tendency to reject leading positions in the labor
movement was reflected in the answers given to the question “Where would you prefer to demonstrate your abilities?” Only 7.4 percent responded that they would like todemonstrate their abilities through union activities,
whereas 52.8 percent said in their own work, 23.8 percent replied in a company or local government, and 4.8
percent chose in activities contributing to society.
Concerning problems labor unions face, an overwhelming proportion, 80.3 percent, felt that nobody isready to lead. This was followed by 76.6 percent who
cited a lack of enthusiasm among young people for
improvements via the union, 75.6 percent said the problem was that executives and the rank and file do not thinkin the same way, and 74.9 percent said low rate of participation in union meetings. All these highlight the declining centripetal force of labor unions.
Future tasks for the unions were seen as reconcilingdemands between work and family, (83.7%), followed bybetter communication among union members through,for example, making use of the Internet, building unions
that the general public trusts, and shorter working hours.
Rengo Will No Longer Set Basic Pay Raise
The shunto, or spring wage offensive, is a united campaign mainly for higher wages launched each spring bylabor unions representing a variety of industries.
Industrial unions coordinate strategies (for example,
which unions will negotiation first, and so on) and guidelines for pay hikes (though the decisions and agreements
are made by individual enterprise unions). Within thesame industry, negotiations take place simultaneously tocompensate for the lack of individual bargaining power.
Thus, the shunto is regarded as a symbol of the labor
movement. So far, the primary agenda of the negotiations
has been focused on pay hikes: regular wage increase on
an annual basis in accordance with tenure, and a basic-5-

JAPAN LABOR BULLETIN September 1, 2002 第3種郵便物認可

Special Topic

Does the ¥1.03 Million Tax Exempt Limit Depress
the Hourly Wage of Part-time Workers?
Yukiko Abe
Associate Professor
Faculty of Economics
Asia University
the “fixed” annual working hours.
Such a wage will be low, and therefore, this brings about a low wage
level for part-time workers (1) (2) .
However, it is difficult to square this
explanation with the time-series
movement in hourly wages. Kantani(1997) and Abe (1999 and 2000) use
GSPWC data (1990 and 1995) whichshows that the working hours of parttime female workers declined from1990 to 1995. During this period, the ceiling increased only
slightly, while the minimum wage rose. If many employers
set the hours of part-time workers as the fixed-hours hypothesis suggests, it is unlikely that the hours of part-timers would
decline substantially in a short period.
Furthermore, Abe (1999, 2000a and 2000b) shows thatthe growth rate of part-time wages is roughly the same as thegrowth rate of regional minimum wages, although there aresome variations across prefectures(3). Regional minimum
wages increased by 24 percent from 1990 to 1999. On theother hand, since the ceiling barely changed during this period, the combination of fixed-hours hypothesis and the constant ceiling would imply that the nominal wages of parttimers stayed constant. The evidence shows that, on average,
hours declined and wages rose, which seems to contradict the
fixed-hours hypothesis.
There are two other aspects of Higuchi’s fixed-hours
hypothesis that seems to contradict the evidence. The first is
the employers’ response to employees’ behavior to restrict
earnings. Higuchi (1995, page 204) wrote:

The ceiling of ¥1.03 million for tax-exempt annual
income has been a source of controversy for its possible rolein distorting the part-time labor market in Japan. Some haveargued that the ¥1.03 million ceiling depresses the hourly
wages of part-time workers (Higuchi, 1995; Kantani, 1997;
Nagase, 1997b). In these studies, the authors provided datathat part-timers who target their income toward the ceiling
receive lower hourly wages than other part-timers. Based on
this observation, they argued that the ceiling is responsible forthe low wages of part-time workers.
In this essay, the author argues that the logic behind theseinterpretations may be questionable, both from a theoreticaland empirical standpoint. The specific reasons are: (1) thetime-series movement of hourly wages and working hours ofpart-timers seems to contradict the above reasoning, and (2)the low wages for those who constrain earnings can be understood by an alternative explanation, an example of which isthe effect of social insurance premiums on net wages. The
remainder of this essay takes up the hypothesis that the ceiling depresses hourly wages. Then, evidence that contradicts
this hypothesis is presented, and finally, an alternative explanation for this phenomenon is given.
1. Why the Ceiling Depresses Part-time Wages
Higuchi (1995) used the General Survey on Part-timeWorkers’ Conditions (then the Ministry of Labour, hereafterreferred to as GSPWC) data of 1990, and found that the average hourly wage of part-timers who constrain earnings
toward the ceiling is five percent lower than that of parttimers who do not target their earnings toward the threshold.
He interpreted this as follows: “Those who try to restrain theirearnings have less pressure to demand wage raises than others, or, they do not mind working at firms that pay low
wages.” Kantani (1997) used a similar method with 1995
GSPWC data, and showed that the hourly wages of those who
constrain earnings is nine percent lower than those who donot. Nagase (1997b) argued that part-time wages are “sustained by the minimum wage from below, and depressed bythe ¥1.03 million ceiling from above,” so the ceiling lowers
the hourly wages of part-time workers.

What happens if the hours of part-timers are fixed?
We often hear that employers have problems in thebusy period of December because employees do notcome to work since they want to restrain their earnings
below ¥1.03 million. … Some part-time workers may
work without pay, because otherwise the firm might
terminate their employment contract, or because they
feel bad the firm is having difficulties due to a shortage of workers.

2. Fixed Hours Hypothesis
Higuchi used the “fixed hours hypothesis” to explain theconnection between the ceiling and the low hourly wage. The
argument is as follows: Part-timers are expected to work a
fixed amount of hours and have little discretion over theirhours. Therefore, those who try to keep their earnings below¥1.03 million work at a wage equal to 1.03 million divided by

The workers who come to work end up receiving no pay
for the extra hours worked, so the hourly wages fall.
However, it is hard to imagine that employers cannot predictthat workers who plan to constrain their hours may not work
many hours in December. Based on interviews with several
firms, Wakisaka (1998) listed examples of how employers-6-第3種郵便物認可 September 1, 2002 JAPAN LABOR BULLETIN

organize the work schedules of part-time employees in orderto accommodate the need to constrain their earnings. The following are examples. In the first example, a firm hires parttimers who work half-day to complement the work of parttimers who constrain their working hours. In the second
example, a firm lists cumulative wage payments (including
bonuses) from the beginning of the year on the monthly paycheck. Since it is necessary to assure a sufficient workforce inDecember, a firm will make a list of employees whose earnings might exceed the threshold, and distribute it to branchheads several months in advance, who then readjust schedules
so part-time workers can keep their annual earnings below thethreshold.
The following also suggests that employers do take into
consideration the behavior of their employees in limiting
hours to constrain annual earnings. The help-wanted advertisements for part-time work often include expressions suchas, “the Special Exemption for Spouse is applied to this job,”“this job is for those who want to maintain their dependent
status,” or “work days are negotiable if you wish to keep yourdependent status.” These employers try to attract workers
who will adjust their working hours in order to keep theirearnings below the threshold; thus, for those employers, the¥1.03 million ceiling is well known. These advertising
expressions are most common for banks or financial firms,
but other industries use them as well. The part-time wages inthese industries are not necessarily low, compared with thosein other industries. It is difficult to imagine that employers
who post such advertisements would not predict that employees will be absent from work in December in order to cap
their earnings. Rather, they probably propose schedules that
accommodate their employees’ desire to constrain earnings.

Theoretically, it is hard to justify the argument that the ¥1.03
million ceiling depresses hourly wages without assuming amonopsony by employers. If leisure is a normal good and thelabor market is competitive, it is difficult to expect lower hourly
wages for part-timers who face the ceiling: workers would prefer
fewer hours with a higher hourly wage. Furthermore, whether
the regional labor market for part-time workers is monopsonistic
or not is probably unrelated to whether the ¥1.03 million ceilingexists, or whether the value of the ceiling is adjusted at the samerate as the wage growth.
(3)
Kantani (1997) and Nagase (1997b) argued that even thoughemployers try to raise wages of part-timers with long tenure,part-time workers do not welcome the raise because they worry
it will make it difficult to keep their earnings below the threshold. If this phenomenon is widespread, wages of incumbent
workers do not increase much (in nominal terms). However, as
shown above, the average wage of part-time workers increases
in nominal terms, and part-time wages are above the minimum
wage. If the wages of incumbent workers do not rise, the overall
increase in part-time wages is likely to be caused by the highwages of the new entrants, or by the wage increase at the
turnover (for those who changed employers). However, on thecontrary, Nagase (1997b) argued that the reservation wages for
new entrants are low.
(2)

References:- oshaAbe, Yukiko. “Josei Part-time Rod
no Shakai Hoken Kanyu- noBunseki” (Analysis of Female Part-time Workers
Participation into the Social Insurance System). Kikan Shakai
Hosho- Kenkyu- (Social Security Research Quarterly): 35 (1999):
77-95 (in Japanese).
Abe, Yukiko. “Fringe Benefit Provisions for Female Part-timers inJapan.” Paper presented at NBER-JCER conference on Labor
Markets and Firm Benefit Policies in Japan and the UnitedStates (2000).
Abe, Yukiko. “Chiiki-betsu Saitei-Chingin ga Part-Chingin ni- (The Effect of Regional Minimum Wages on
ataeru Eikyo”
noPart-time Wages). Inoki, T. and F. Ohtake eds. Koyo-seisaku
Keizai Bunseki (Economic Analysis of Labor Market Policies).
Tokyo: University of Tokyo Press, Chapter 9, 2001 (inJapanese).
- o- no Tayoka- to Kadai” (Diversities
Kantani, Takayuki. “Josei Rod
in Female Employment and Policy Issues concerning Women
Workers). Financial Review: (December 1997) 29-49 (inJapanese).
Kohara, Miki. “Saitei Chingin wa Dare wo Sasaete Iruka?” (Whois Supported by the Minimum Wage?). Paper presented during
the autumn meeting of the Japan Economic Association (2000)(in Japanese).
Higuchi, Yoshio. “The Economic Consequences of Protection
Policies for Nonworking Married Women.” Hatta, T. and N.
Yashiro eds. Economic Analysis of Protection Policies for the“Disadvantaged.” Tokyo: Nihon Keizai Shimbunsha, Chapter
7. 1995 (in Japanese).
- o- Ky oky- u:- Tanjikan,
Nagase, Nobuko. “Kikon Joshi no R od
- o- Kyoky- u- Kansu no Suitei” (Female Labor Supply
Chojikan
Rodin Japan: Sample Stratified by Length of Work Week), Keizai
Kenkyu- (Economic Review): 48. 1 (1997a): 49-58.
Nagase, Nobuko. “Part no Chingin wa naze Hikui ka? Shoseido no
Ashikase” (Why Are Part-time Wages so Low? Obstacles by
Institutions). Unpublished internal memo, in Kokusaika no- o- Shijo: Seido Seisaku no Eikyo- (Globalization
Shinten to Rod
and the Labor Market: Institutions and Policy). Koyo Sokushin
Jigyodan, Tokei Kenkyu Kai, 159-191 (1997b).
Wakisaka, Akira. Shokuba Ruikei to Josei no Career Keisei(Employment Practices and Career Development of Women
Workers). Expanded edition, Tokyo: Ochanomizu-shobo, 1998.

3. An Alternative Explanation
It is possible to explain the hourly-wage differential
between those who constrain earnings and those who do notwithout relying on the fixed-hours hypothesis. An example ofother explanations is social insurance premiums. Unless thelabor supply is perfectly inelastic, labor supply responds tothe wage rate. If nominal wage rates are the same, the aftertax (net) wage of those who pay social insurance premiums
will be lower than those who do not pay premiums. If thelabor supply of social insurance participants is not perfectly
inelastic, it is necessary to set their nominal wages higher
than for non-participants in order to induce a labor supply ofparticipants. Workers who do not constrain earnings tend toparticipate in social insurance programs more often than nonparticipants, so the after-tax wage of participants is not necessarily higher than that of non-participants. For example, thenine percent premium found by Kantani may not be sufficient
to offset the cost of social insurance premiums.
Notes:(1)
Kantani (1997) used this hypothesis as well. In particular, heshowed that part-time workers reduce their hours by working
fewer days rather than fewer hours per day, arguing that, “it isprobably difficult to shorten the hours per day any further.” On
the other hand, Nagase (1997a) argued that part-time workers
can choose their hours in a flexible manner, while full-timeworkers cannot, thus, part-timers are not constrained by fixed
hours. Therefore, Nagase probably did not base her argument on
the fixed-hours hypothesis.

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JAPAN LABOR BULLETIN September 1, 2002 第3種郵便物認可

Special Topic

Wife Allowance and Tax Exemption
behind Low Wages for Part-time Workers
Nobuko Nagase
Associate Professor
Graduate School of Humanities and Sciences
Ochanomizu University
1. An Ever Widening Wage Gap
An increasing number of workers are engaged in part-time
employment, comprising 39 percent of all female workers in
2001, whereas the comparable figure 15 years ago was only
about half that. Despite the growing number of such workers,
the gap between the average wage of full-time and part-time
female workers has widened in the last 20 years. In 2000, thehourly difference increased to as much as around 56 percent,including bonus payment. Such a trend is puzzling as demandfor part-time workers is relatively high, and it contradicts
results of case studies by researchers such as Takeishi (2001),
who discovered an increased productivity and work experienceamong part-time workers. If demand is higher for part-timeworkers than for full-time workers, a simple economic theory
predicts that the wage gap between the two should narrow inthe long run. Therefore, the reverse trend needs to be scrutinized in the face of the increase in the number of part-timeworkers.

workers compared with regular workers. In addition, Nagase (1995) pointed to the interesting differences in thewage structure between sexes. On thewhole, occupation and educational
difference were more pronounced inwage variations for male part-timeworkers compared with female workers. Twenty-five percent of the variation in wages was explained by eightoccupational dummies for men while
the respective figure was only 15 percent for women; about the same percent was explained byregional wage level difference for women, and not for men.
In other words, the wage variation was quite small and near
the local minimum wage level for part-time females but not
for males. The findings showed that human capital differences
played a smaller role in part-time wages for women than formen.

2. Features of Part-time Workers
Regular workers, seishain, have a work contract for anindefinite period, receive a monthly salary, work full-time,and often receive twice-yearly bonuses, severance pay andother fringe benefits. Previously, the majority of newly-graduated youth entered the workforce as such “regular employees.” For example, 95 percent of new graduates in 1990 were
hired as regular employees, however, that figure dropped to
80 percent in 2001.
The different types of non-regular workers include parttime workers, arubaito (temporary), shokutaku, contract anddispatched (agency) workers, with part-time workers comprising the largest share. An interesting point is that “part-time”
workers sometimes work long hours, as much as regular
workers even though they are internally classified as “parttimers.” The Labor Force Special Survey 2001 published by
the Statistics Office defines one to be “part-time” when they
are called as such at the workplace. According to data fromthe Labor Force Special Survey, there are 11.3 million “parttime” employees, of which 30 percent worked more than 35hours a week. While the greatest number of part-time workers
are still married women, more men over 60 years old and intheir early 20s, as well as single women are turning to parttime work.

4. Tax and Social Security Regulations behind Low Wages
The author’s hypothesis is that the distortion caused by the
tax and social security systems and enterprise practices that
aim to take care of low earning housewives not only places a
cap on the work hours of married women, but also depresses
the wage rate of part-time women workers.
Those whose annual earnings are below ¥1.03 million do
not have to pay national income tax. The 10 percent progressive national income tax, and five percent progressive prefecture income tax start around this limit. If a single person
makes more than ¥1.03 million, he or she would fall in the 10
percent bracket. But, if one is married to a person who alreadyfalls in the 20 percent bracket for national income taxes, thenet household tax rate for both national and local taxes will be
about 45 percent for additional yen over 1.05 million a year
due to the decline in the spousal deduction. Moreover, adependent spouse of a wage earner is covered by the working
spouse’s social insurance, pension, health and nursing-care
programs, without paying her own premium. The premium
will be a levied lump sum of about ¥0.2 million, depending on
the municipality, once the wife’s annual income reaches ¥1.3
million. In addition, most private enterprises incorporate
spousal allowances in the main-income earners’ pay check,estimated at around ¥0.1 to ¥0.2 million per household a year.
In more than half the cases, this allowance ends once thespouse is no longer a dependent, or starts to pay tax on her
earnings. Due to these various costs, the income benchmarkof ¥1.03 million is often called “the ceiling on income for3. What Mechanism Keeps Part-time Wages So Low?
Is the large wage gap between full and part-time workers
explained by differences in human capital? Osawa (1993)
showed that return on tenure is much lower for part-time-8-

第3種郵便物認可 September 1, 2002 JAPAN LABOR BULLETIN

part-time workers.” Many women target their income below
the ceiling, and such behavior also may depress the wage rateof married women.
Let us consider some examples. Suppose a worker is paid
¥800 per hour, near the national average for part-time workers. She can work up to 1,288 hours annually and still keep
her income below the annual earnings of ¥1.03 million. This
would result in about 24.5 hours of work per week. Suppose
her manager appreciates her skill and effort, and considers apay raise to, say, ¥1,000 per hour. This will result in an
increased income of ¥255,000 if other things remain equal.
However, the tax increase and allowance cut can easily surpass the extra money resulting from the pay-raise, so the likely outcome is that the worker will cut back her workweek,say, by five hours in order to keep her income below ¥1.03
million. Ironically, this manager will find that his pay raise,
instead of “encouraging” this worker to work harder, resulted
in a quality worker voluntarily cutting her working hours. If amanager believes that such a thing will happen, he will behesitant to raise the wage of part-time workers though they beof high quality. The lump sum payment involved in “crossing
the barrier” has increased, moreover, due to the introductionof the national nursing-care insurance system and an overall
increase in social insurance premiums for pension and health.
Accountants suggest that working wives keep their annual
income within ¥1.03 million or over ¥1.7 million, but not in
between(1). In the case of our part-time worker who is paid
¥800 per hour, she will reach the “ceiling” if she worked 24.5
hours a week, and it is better if she does not work more hours
or if she works over 41 hours a week, which is full time. It is
not surprising that many married women choose to shorten
their working hours. The findings of the General Survey on
Part-time Workers’ Conditions and other statistics show thatmarried women tend to increase their working hours as their
youngest child grows older, but this “ceiling on income forpart-time workers” makes them hesitant to work full-time,
especially when their spouse’s income is high. More than halfof households with salary incomes (67.5%) said that the relaxing of tax and social security rules would result in more
women wanting to increase the number of hours they work(2).
Another survey showed that the most common reason that adependent spouse, as defined in the National Pension Plan,
had for not working on a regular basis was childcare forwomen in their 30s and younger, but for those in the 44 to 54
age bracket, the main reasons were to claim the tax exemption
or because they could not find a regular job, both accountingfor 20 percent of the responses(3).

working longer specified hours, and so on.
Comparing the 1990 and 1995 surveys, hourly wages forpart-time workers who worked many hours shifted upwards,
which was consistent with economic prediction when the ceiling constraint became stronger. However, the difference inhourly wage levels between part-time workers who are
exempt from paying tax and those who are not was estimatedto be somewhere around six percent. (Nagase [1997] estimated figures based on 1990 data.) This shows that a premium is
paid to workers who work longer hours, but their wage level
still falls short of what regular employees earn. In the longrun, if workers do not receive equal pay for equal work, companies would not be able to recruit new workers. However,this equalizing force does not seem to have affected the wage
difference between part-timers who work longer hours andregular employees. Now, why is this?
Perhaps the reason lies in the fact that higher quality
workers are often those who are willing to confine themselves
to shorter working hours. The cost of exceeding the tax
exemption limit is more expensive for women married tohigh-income earning men. Women with higher educational
qualifications — a potential pool for qualified workers — aremore likely to be the spouse of men receiving such better
treatment. Thus, the labor market for part-time workers is
subject to “adverse selection,” whereby high quality workers
work shorter hours and are less committed while those who
cannot become regular workers stay as part-time workers,
working longer hours. Results from the National Survey of
Family Income and Expenditure showing the distribution ofmonthly income of “wives,” not just those who work as parttime workers but regular employees and others as well, can befound below. The two peaks visible in Figure 1 correspond totax-exempt and social security exempt monthly income,showing the extent to which this system affects the work
behavior of married women. On the other hand, when thewage distribution of wives of low income earning husbands isseparated out, there is no similar hike since such a spousedoes not gain much from income targeting and work hour curtailment.

Figure 1. Income Distribution of Women Married toWage and Salaried Workers%
30

7.5~1025

10~12.520

5. Changes in Wage Structure Related to the Ceiling
Over the years, the “ceiling” did not rise as much as theaverage wage rate of part-time workers. As a result, the percent of part-time workers who replied that they adjusted theirworking hours for tax or other comparable reasons was 30
percent in 1990, but increased to near 40 percent in 1995
according to General Survey on Part-time Workers’ Conditions.
Correspondingly, and as seen in the previous section, theaverage number of hours worked by part-time employees
decreased, and the number of workers who worked about 20
hours per week increased(4). Because more workers were constrained by the ceiling, firms reacted by offering wage andwork-hour packages, such as so much yen per hour up to thetax exempt limit, or a higher hourly pay of this much yen for

15
10
5
0
(¥10,000)

0

10

20

30
40
50
Monthly salary

60

70

Source: Tables made using 20 percent random sub-samples from the
National Survey of Family Income and Expenditure, 1994 underthe “Project of Exploring New Frontiers in Statistical Analysis
using Micro Data Sets,” in which the author participated.

-9-

JAPAN LABOR BULLETIN September 1, 2002 第3種郵便物認可

to ¥1.08 million a year formed another major income group.
These results are consistent with the analysis in the main text.
(2)
FY 1997 National Survey on Lifestyle Preferences.
(3)“Actual Situations of Category 3 Insurees (Females)” (1997),
the Ministry of Health, Labour and Welfare.
(4)
In fact, if the average hourly wage is ¥600, the worker needs towork 33 hours per week to earn ¥1 million a year. This is close
to a typical hourly wage and number of working hours in 1990.
In 1998, the average hourly wage was ¥886 and the average
working hours was 24 per week. These figures surprisingly
accord with the calculated target of ¥1 million.

6. Future Tax and Social Security Systems
The system whereby married women with incomes lower
than a certain level are entitled to exemptions in social insurance premium or tax payments is not unique to Japan.
Nevertheless, the problems and distortions caused by the system is on a much larger scale in Japan than in other countries.
Still, there is a positive side in any system. Since thespouse of a high income earner works less hours than her
counterpart in a low income household, the system serves toequalize the disparity in household income. Because quality
workers often curtail their work hours, less qualified workers manage to find work in the recession, creating a kind ofwork-sharing. Despite all this, it is high time the system wasthoroughly revised. More workers who need to make theirown living are entering the part-time labor market as theavenue to regular employment is narrowed. Housewives
who accept the lower wages in effect bring down the wage
levels of young non-standard employees and divorced
women. Regular employment is dwindling; if changes are
not made, a smaller number of regular employees will haveto bear heavier tax and social insurance premium burdens,
further narrowing access to regular employment.

References:
Nagase, Nobuko. “Pato no Chingin Kansuu no Suitei to Pato
Sentaku no Jihatsusei” (Wage Structure of Part-time Workers,
Is Their Choice Voluntary?). Nihon Keizai Kenkyu: 28, 162184 (1995) (in Japanese).
Nagase, Nobuko. “Pato no Chingin ha naze Hikui ka? Shoseidono Ashikase” (Why Are Part-time Wages so Low? Obstacles
by Institutions), in Kokusaika no Shinten to Rodo Shijo: Seido
Seisaku no Eikyo (Globalization and the Labor Market:
Institutions and Policy). Koyo Sokushin Jigyodan, Tokei
Kenkyu Kai, Tokyo, 159-191 (1997).
Osawa, Machiko. Keizai Henka to Josei Rodo (Economic Change
and Women’s Work), Nihon Hyoronsha (1993) (in Japanese).
Takeishi, Emiko. Change of Employment Management in the
1990s and the Structure of Women’s Career within
Corporations, Ph.D Dissertation, Ochanomizu University(2001) (in Japanese).

Notes:(1)
According to the General Survey on Part-time Workers’ Condition(1995), 30 percent of part-time female workers paid on amonthly basis earned ¥1.8 to ¥1.92 million annually, comprising one of the major income groups. Those who earned ¥0.96

FeatureThe 2002 White Paper on the Labour Economy: A Summary of the Analysis
On July 9, 2002, the Ministry of Health, Labour andWelfare released its 2002 White Paper on the Labour
Economy. The White Paper presents an analysis of recent
employment and unemployment trends and backgrounds,along with international and regional comparisons. It also
deals with mismatching in the labor market, labor productivity and wages, long-term unemployment, latent unemployment and excess employment. The following provides achapter-by-chapter summary of the White Paper.
%
10.0
9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0

1. Gloomy Situation Continues
1.1 Trends in Employment and Unemployment
The Japanese economy entered into recession in October
2000, and production levels subsequently fell to those of the
1987-88 period. Conditions in the labor market also became
increasingly severe. The main features in 2001 were:(i) A sharp drop in the number of employees from August
onward, and the number of employed people fell steadily

Figure 1. International Comparison of Unemployment
Rates Using ILO Standards (2001)

%
14

8.6

Figure 2. Long-term Trends in Unemployment Rates

12
7.9
10
8

5.0

5.0

4.8

6

3.9
4
2.4

2
0

Japan

UnitedStates

South
Korea

France Germany Netherlands United
Kingdom

1963

’70

’75

’80
Year

Source: OECD, Labour Force Statistics.

Source: OECD, Main Economic Indicators, 2002; Employment Outlook, 2001.

-10-

’85

’90

’95

2000

Japan
Netherlands
United States
Germany

第3種郵便物認可 September 1, 2002 JAPAN LABOR BULLETIN

through the year.
(ii) The unemployment rate remained high, marking 5.5 percent in December.
(iii) The number of new job openings fell throughout the year,
the new job opening rate fell, and the active job opening
rate remained flat.

3. Supply/Demand Mismatch Greater Outside Public
Employment Offices
Estimates of structural and frictional unemployment and of
demand deficiency unemployment suggest that the former wasin an upward trend in the 1990s, particularly after the burst of
the bubble economy, while the latter increased substantially in1998 and 2001, reflecting the economic recession.
The success rate in finding a job for registered job seekers and the rate of sufficiencies to active openings recordedat Public Employment Security Offices do not necessarily
give definite indications of an increase in mismatch after thecollapse of the bubble economy. In other words, the rate ofstructural and frictional unemployment is likely to havebeen pushed up by a class of workers who do not make useof Public Employment Security Offices.

Even though production levels bottomed out in 2002, theemployment situation continued to remain gloomy.
1.2 Trends in Wages and Working Hours
Reflecting the slowdown and deterioration in economic
activity since the end of 2000, employees’ total cash earnings
decreased. Less overtime resulted in a drop in non-scheduled
cash earnings, while bonus payments and other special earnings
continued to fall. Lower scheduled cash earnings has been
attributed in part to the increasing number of part-time workers.
The total number of hours worked shifted downward due toreductions in both scheduled and non-scheduled working hours.

Figure 3. Trends in the Structural and Frictional
Unemployment Rate and Demand Deficiency
Unemployment Rate%

1.3 Trends in Prices and Employee Household Finances
Consumer prices continued to drop for the third consecutive year due to cost reductions and a slump in consumption. The stabilization of oil prices sent wholesale prices
into a decline, emphasizing a deflationary trend.
Consumer expenditure in employee households declined
for the fourth consecutive year, reflecting the sluggish
growth in incomes and a lack of consumer confidence.

6.0
5.5
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
-1.0

2. Unemployment Rates among Youth and Older Men
While unemployment rates in Western countries havetended to decrease in recent years, in Japan they continue torise. Any further increase is likely to make Japan an “ordinary” country in terms of unemployment levels.
A special feature of Japan’s unemployment is the higher
rate among young people and older males. The high rate
among youth is attributed to those who recently left highschool or university, entered the labor market, but then quit
their job. Behind the large number of job quits is a job market that has been on the decline since the latter half of the
1990s. The White Paper implies that repetitively changing
jobs can be disadvantageous to workers in terms of skills
formation, which can best be realized through continued
engagement in the same job.
As a whole, the job participation rate in Japan is high byinternational standards, but not for women. One reason forthe high job participation rate among Japanese males is thehigh rate for those men 55 and older, whereas the low rate
for women is caused by the low rate among women withhigh educational levels. Regarding this, the White Paper
notes that when women wish to re-enter the job market after
a temporary absence due to childbirth or for other reasons,having a higher education is not necessarily beneficial. In
recent years, the increase in the unemployment rate has
exceeded fluctuations in the job participation rate because
the tendency for workers to leave the labor market when
demand decreases — which served to curb increases in theunemployment rate — has decreased.

1970

Unemployment
rate

Structural & frictional
unemployment rate

’75

’80

’85

Demand deficiency
unemployment rate

’90

’95

’2000 ’01

Note: The demand deficiency unemployment rate = the unemployment rate the structural and frictional unemployment rate.
Sources: Ministry of Health, Labour and Welfare, Report on Employment
Service, and the Ministry of Public Management, Home Affairs, Posts
and Telecommunications, Labour Force Survey; estimates compiledby the councillor in charge of labor policy at the Ministry of Health,Labour and Welfare

4. Productivity and Labor Costs
Japan’s labor productivity (GDP per worker) is more orless the same as countries in Europe, but only about 70 percent that of the U.S., while unit labor costs in Japan are 20
to 30 percent higher than in either the U.S. or Europe.
However, labor productivity in the manufacturing sector has
steadily improved compared to other countries, and the unit
labor cost has been on a downward slide, although, when
exchange rates are taken into account, it has not necessarily
fallen compared to elsewhere.
China and other countries in Asia have improved technologically, and Japanese manufacturers are no longer superior when wages and other costs are taken into consideration. Estimated wage differences in the manufacturing sectors show that, if the wage in Japan is 100, wages in NIES
are 40 to 50, in ASEAN countries it is less than 10, and in
India and China the figure is one to two. The rate of overseas production by Japanese manufacturers increased substantially, from 6.4 percent in fiscal 1990 to 14.3 percent(forecast) in fiscal 2001. The so-called hollowing out phenomenon will have a substantial impact on employment at-11-

JAPAN LABOR BULLETIN September 1, 2002 第3種郵便物認可

tain criteria and impose age limits. Of these firms, morethan 60 percent set the minimum age at 45 to 54. Also, mostfirms pay an extra retirement allowance to workers who
accept the offer.
A majority of firms have cited negative effects of labor
shedding, such as a lower morale among employees, anincrease in working hours for the remaining workers, and ahemorrhaging of quality workers. At the same time, however, such measures improved worker productivity in many
firms, the positive effect overtaking the negative one in thiscase. What is more, an analysis indicates a possible correlation between the impact of labor cuts and the carrying out orotherwise of direct labor shedding.

home.
As for the impact of domestic wages on employment,
while wages of part-time workers have fallen substantiallysince 1998, those of regular workers have remained more orless the same, widening the wage gap between the twogroups. Wage rigidity (a tendency for wages not to fall) is
stronger among regular workers than among part-timeworkers, and it is possible that this is encouraging a drop in
demand for regular workers and a shift towards demand forpart-time workers.
Figure 4. International Comparisons of Unit Labor Costs(in U.S.$; Japan = 100)
140

Figure 6. Effects of Labor Shedding

120

60
40
20
0
Japan

United States

Germany

France United Kingdom South Korea

All industries (1998)

Manufacturing (1999)

Note: The manufacturing figures for Germany are from 1997.
Source: ILO, Key Indicators of the Labour Market 2001-2002.

Note: Figures represent percentage of those firms that responded yes to either“have implemented labor shedding policies,” “in the process of implementing labor shedding policies” or “plan to implement labor shedding
policies in the future.”
Source: Japan Institute of Labour, Survey concerning Business Restructuringand Employment (Enterprise Survey), 2002.

Figure 5. Comparison of Wage Levels in Asia
(compared with Japan, yen based)
Country
Singapore
South Korea
Hong Kong
The Philippines
Thailand
Malaysia
Indonesia
India
China

Imp
rove
d pr
odu
ctiv
ity
Low
ered
prod
ucti
vity
Incr
e
a
hou sedemp rs for r working
loye emai
ning
es
Hem
o
r
ity w rhagorke ing ors
f qu
alDiff
icul
ty in
recr
uitin
g
Incr
retir ease ineme
nt volunta
ry

80

Low
mor er emp
ale
loye
e

100

Imp
mor rove em
ale
ploy
ee

%
60
50
40
30
20
10
0

Japan = 100
46.7
37.4
40.4
5.0
4.5
12.6
0.8
0.9
2.3

6. Number of Those Unemployment for Long Term
Grows Fourfold in 10 Years
Special features of unemployment in recent years
include an increase in the number of people unemployed for
longer periods. The number of long-term unemployed
Figure 7. Trends in the Unemployment Rate andLong-term Unemployment Rate

Notes: 1. 2000 wage levels are used for Singapore, South Korea, Hong Kong
and China; 1999 figures for the Philippines, Indonesia and Thailand;
1997 figures for India and Malaysia.
2. Monthly wages are used for comparison for all countries except
Indonesia, where the weekly salary is used.
3. The wages are in comparison to the yen; the exchange rate is the average for each year.
Sources: ILO, Yearbook of Labour Statistics; Cabinet Office, Overseas
Economic Data; Ministry of Health, Labour and Welfare, Monthly
Labour Survey.

%
65Long-term unemployment rate
Unemployment rate

43

5. Business Restructuring and Labor Shedding
An increasing number of firms nowadays carry out
direct labor shedding through, for example, voluntary retirement schemes and dismissals. Such reductions in the labor
force are largely affected by the overall business situation,
and are not necessarily due to any significant change in theemployment strategy of the firms concerned.
Some 70 percent of the firms involved in voluntary andearly retirement schemes with special benefits require cer-2
101990 ’91 ’92

’93

’94

’95 ’96
Year

’97

’98

’99 2000 2001

Note: Long term employment = number of people who are unemployed formore than a year ÷ labor force population.

-12-第3種郵便物認可 September 1, 2002 JAPAN LABOR BULLETIN

human resources and know-how. Recently, the age of people starting new businesses has been rising, mostly probably
because it is middle-aged and older workers who are beinglaid off.
Despite everything, the rate of job creation has beenfalling in recent years in the service sector, and in order toreverse the trend, particularly in businesses targeting individual consumers, it will be necessary to stimulate personal
consumption. Also, with the current gloomy state of thelabor market, work sharing has been attracting widespreadattention in the interest of maintaining and creating jobs.

increased by some 700,000 in the last 10 years, a fourfold
increase in terms of number and three times in terms ofgrowth rate. Half of these workers are either youth or oldermen; the number of youth who have been without a job fora long period has grown some fivefold since the early
1990s.
A majority of workers who have been unemployed for along period do not have their own income but rely financially on family members with incomes, placing a great strain
on household finances. Even those with other family members with incomes are obliged to reduce their savings, whichputs pressure on them in the long run.
While a prolonged duration of unemployment is conditioned by the sluggish economy, the urgency with which
one searches for work is also a factor. The longer a worker
is unemployed, the more difficult it becomes to find work,
since protracted unemployment lowers the confidence andability of the workers concerned. Thus it is crucial to assist
them to find employment as soon as possible.

Figure 8. Average Age when Starting a New Business
Age
42
41.6
41
40

7. Excessive Employment and Latent Unemployment
The gloomy state of the job market has aspects whichcannot be understood solely in terms of unemployment. In
this regard, reference is often made to excessive employment and latent unemployment. With the economic situation
fluctuating, qualitative and quantitative gaps develop
between the number of workers actually required by firms
and those who are currently employed, leading to “excessive employment.” Investigation of such employment isuseful in understanding the employment situation.
At the same time, it is difficult to get a clear picture ofexcessive employment; the estimated number of people who
fit in this category varies considerably depending on themethod used. What is more, having “excessive” workers
does not necessarily imply the need for employment adjustment, since it is only reasonable in an economic sense forfirms to hold on to excessive workers for a period of time.
It has also been argued that to understand the actual stateof unemployment it is important to consider latent unemployment because this covers those who wish to work but
have given up looking as no appropriate job is available. It
is said that by international standards latent unemployment
exists on a large scale in Japan, but it should be noted that
this is not necessarily a serious problem as quite a few people in this category are ready to take a job as long as they do
not need to sacrifice their family life.

38.9

39
38
1991

’92

’93

’94

’95
’96
Year

’97

’98

’99

2000

Source: National Life Finance Corporation, Survey on New Business Start-ups.

Figure 9. Trends in Labor Mobility

%
50
45
40
35
30 Accession rate2520
15
Separation rate
101964 ’67’70’73

Labor mobility rate

’76

’79

’82

’85

’88

’91

’94

’97 2000

Year
Notes: 1. Accession rate = the number of new hires ÷ the number of people
already employed in the enterprise. (As of January 1 of the year thesurvey was conducted.)
Separation rate = the number of people leaving the company ÷ thenumber of people employed in the company. (As of January 1 of theyear the survey was conducted.)
Labor mobility rate = the accession rate + the separation rate.
2. Construction firms have been included in the figures since 1991.
Sources: Ministry of Health, Labour and Welfare, Survey on Employment
Trends.

8. Job Creation and Loss: Older Workers Set Up New
Businesses
The industrial structure in Japan first shifted weightfrom agriculture and other primary industries to secondary
industries such as manufacturing, and is now shifting
towards tertiary industry, that is the service sector.
Under such circumstances, the number of job openings
in tertiary industry due to new business start-ups exceeds
the number of job losses due to business closures, whereas
in the manufacturing and construction industries the reverseis the case. The rate of start-ups and closures in Japan is low
by international standards.
Possible factors hindering new start-ups would seem toinclude difficulty in financing businesses and a lack of

9. Labor Mobility and Job Switching
Labor mobility in Japan was fairly high during the 1960s
and the first half of the 1970s, but as economic growthdeclined after the first oil crisis in 1973, it began to fall.
During the so-called bubble years, mobility increased slightly, but decreased when the economy began its downward
slide. Reaching a low in 1994, it has tended to increasesince then.
The desire to switch jobs is becoming stronger among-13-

JAPAN LABOR BULLETIN September 1, 2002 第3種郵便物認可

the younger generation in the long term, but whether they
actually do so depends considerably on economic conditions, and is influenced by the diversification of job contract
patterns and the increasing predominance of the service sector.
Where the redistribution of labor across different industries is concerned, newly-graduated students play a largerole. Those already employed who wish to change jobs tend

to move within the same industry, and contribute little toredistribution. Labor mobility across regions is tending tofall.
The success rate in job switching is high among those
who possess and make use of specialized knowledge andskills, but middle-aged and older workers are at a disadvantage.

A View of the 2002 White Paper on the Labour Economy
Souichi Ohta
Associate Professor
School of Economics
Nagoya University
considering the possibility that the prevention of this typeof unemployment may be the key to dealing with unemployment as a whole in Japan, too, it deserves praise formaking a start on such an analysis.
Generally speaking, measures to reduce the unemployment rate are classifiable under two approaches:
curbing the flow of workers into unemployment; andencouraging the outflow of workers from unemployment.
I have the impression that employment policies have so
far tended to value the former more highly. However,with the rapid changes in industrial structure in recent
years, this approach is reaching the limit of its effectiveness, and from now on policies encouraging outflow will
become increasing necessary. The analysis of long-term
unemployment developed in the White Paper may wellprovide a clue in such a direction.
Thus, I highly value this year’s White Paper for its
excellent analysis of the current situation. One request,
though: I wonder if there should be more analysis fromthe point of view of those looking for workers. Assumingthat the external labor market means a place where job
seekers, including unemployed people, and firms looking
for workers meet each other, I feel that the White Paper
does not devote enough attention to the investigation ofsuch firms, compared to its analysis of unemployed people.
Of course, I am well aware that the data available islimited, which is not the responsibility of the White
Paper. But since the analysis of labor demand is of obvious importance, I wish that data could be adequately
developed to analyze the number of job vacancies andfluctuations. This would surely make it possible to understand more accurately the nature of mismatching.

This year’s White Paper on the Labour Economy
focuses on the currently gloomy employment and unemployment situation; in this sense, the paper might betterbe entitled “White Paper on Unemployment.” The paper’s
analysis is of high quality and successfully pinpoints
unemployment problems in Japan. Below are the points
that particularly drew my attention.
First, the paper breaks new ground in clearly showing
the relationship between the “employment rate” — thepercent of workers to the overall population — and theunemployment rate. The employment rate is an important
index showing the degree of efficient use of labor
resources, and the highlighting of this index is of greatsignificance.
Secondly, I believe that the paper’s approach towards
arguments concerning the recent increase in the numberof young people quitting jobs and unemployment among
youth is very much to the point in that it associates theissues with a reluctance to land a job during an economic
recession rather than with changes in the attitude ofyoung people toward work. My view is that it is the deterioration of jobs for such people, in terms of both quality
and quantity, that is worsening the unemployment problem; and the approach of the White Paper, which seems
to focus on such age groups, accords with this.
Third, it is constructive that one entire chapter(Chapter 6) is devoted to a meticulous analysis of theissue of long-term unemployment. Studies on unemployment in other countries show that an increase in longterm unemployment prevents the labor market from fulfilling its function in labor matching, and is likely to raise
the level of unemployment. I am not sure that the paper’s
analysis of long-term unemployment is adequate, but-14-

第3種郵便物認可 September 1, 2002 JAPAN LABOR BULLETINJIL NEWS AND INFORMATION
Survey on HRM in Japanese-affiliated Enterprises Abroad (Part 1)
1. Survey Aims and Method
Globalizing Japanese companies are expanding theiractivities in all regions of the world. They employ some three
to four million workers and dispatch around 400,000
Japanese workers to work in their overseas offices, 100,000
of whom are long-term. These enterprises are searching forthe most appropriate personnel management strategies inorder to use human resources effectively and raise performance levels while minimizing friction and adapting to various
local conditions. This survey, conducted in September 2001,
is a continuation of the first survey in 1999 and aims to contribute to the smooth operations of the Japanese companies
that are investing abroad and globalizing by exploring how
they deal with issues such as human resource (HR) management and HR development, and labor-management relations.
There were 967 valid responses (a valid response rate of
38.3%) from 50 countries and two regions. Particular features of the survey results are given below; the remainder
will appear in the October issue.

2. Recruitment, Personnel System and HR Development(1) Some 30 percent of firms have difficulty employing
talented locals
While approximately 30 percent of companies responded
they were rather successful in employing first-class local
people, 6.1 percent answered this was “not the case at all,”and 21.9 percent that this was “not really the case.”(2) Majority of firms adopt local personnel systems forwhite-collar workers
With regard to white-collar personnel systems, 20.3 percent of the companies that replied said they had “full-scale
integration” with personnel systems of local companies, and36.2 percent replied they were “somewhat integrated.” On
the other hand, a majority were “not integrated at all” or“hardly integrated” with the personnel system of theJapanese head office and other companies in the same group.
More companies adopted local personnel systems than inte-

Figure 1. Able to Employ First-class People Locally
2001

4.8

24.4

40.4

1999

7.4

23.2

42.3

0%

10%

Absolutely

20%

30%

Sometimes

40%

21.9

19.3

50%

Cannot say

60%

70%

Not really

80%

6.1

2.4

5.9

1.8

90%

Absolutely not100%

No response

Figure 2. Integration of Personnel Systems for White-Collar Workers (evaluation, promotion etc.)
Personnel system ofhead office

4.3

Personnel system ofcompanies in same group

2.8

Personnel system of
local company

21.6

11.8

10%

Somewhat integrated

15.9

34.3

14.7

25.3

20.3
0%

Full-scale integration

20.2

37.5

36.2
20%

30%

Cannot say either way

7.9

23.3

40%

50%

60%

Hardly integrated

-15-

3.6

70%

8.9
80%

Not integrated at all

8.2
90%

3.2
100%

No response

JAPAN LABOR BULLETIN September 1, 2002 第3種郵便物認可

grating the personnel systems of the head office or affiliatedcompanies.

while 53.9 responded that they somewhat agreed. On theother hand, a high proportion of companies also responded
that they do not agree or cannot really agree with the statements; “attach more importance to employing new graduates
than experienced workers,” “differences in ability and performance are not reflected in employment packages over the
short-term,” and “attach importance to age and years of service when determining wages.”(3) Human resource development methods for local
employees
Regarding methods of human resource development, 42.7
percent of the firms replied that they sent their locallyemployed university graduates and post-graduates to the head
office in Japan for short-term training, 42.3 percent replied
they used in-house training, 40.6 percent replied that such
employees were sent outside the company for training, and37.3 percent assisted in self development (multiple answers
possible).

(5) Attach importance to wages and remunerations, andbonuses and individual incentives to motivate local
employees
Methods regarded as important for raising the motivationof both management and non-management local staff were:
wages and remunerations (management 70.8%, non-management 81.4%), bonuses and individual incentives (management 45.3%, non-management 56.4%), promotion andadvancement (management 42.3%, non-management
44.2%). (Firms could select up to three answers.)
Also, in a relative comparison of non-management andmanagement personnel, transfer of authority, greater degreeof discretion over work, and participation in management
decision-making applied more to people in management
positions than in non-management posts.

(4) Work duty more important than age and years ofservice when determining wages
Just over half of the companies surveyed responded theyagreed that nurturing subordinates is an important responsibility of management (50.3), while 36 percent said that theyagreed somewhat. In terms of conducting personnel performance evaluation for all employees, including those at on-site
operations, 58.6 percent agreed and 21.5 percent somewhat
agreed. More than one-quarter (25.6%) agreed that they
attach importance to work duties when determining wages,(To be continued in the next issue)

Figure 3. Important Factors when Determining Wages
Age and yearsof service

2.8

18.8

29.0

29.5

19.1

0.8
1.7

Work duties

0%
Agree

53.9

25.6

20%
Somewhat agree

40%
Cannot sayeither way

13.9

60%
Cannot really
agree

80%
Do not agree

4.0

0.9

100%
No response

OPINIONS REQUESTEDThe editor invites readers to send their views and comments on the contents of JLB via e-mail toakuwa@jil.go.jp or via fax to +81-3-5991-5710.
All rights reserved by the Japan Institute of Labour. The Japan Labor Bulletin, or parts thereof, may not be reproduced in any form without permission of the publisher or the authors.
The Japan Institute of Labour, 8-23, Kamishakujii 4-chome, Nerima-ku, Tokyo 177-8502, Japan. Tel: +81-3-5991-5165 Fax: +81-3-5991-5710. Price ¥360 (inc. tax) per issue or ¥4,320 (inc. tax) per year.

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