The forum opened with some introductory remarks by President Kuroda, followed by a keynote speech by State Minister Ota. This was followed by the First and Second Sessions, in which panelists engaged in panel discussions and answered questions from the general audience.

1. Keynote Speech
    "Background on Recent Wage and Employment Trends and Issues for Labor Market Reform"

(State Minister Ota)

• For approximately three months since the inauguration of the Abe Cabinet, the Council on Economic and Fiscal Policy has held intensive deliberations on a variety of issues. Based on the results, we will formulate medium-term guidelines for new economic and fiscal policies for the following five years early next year. One premise for the formulation of this guideline is economic performance in the coming years. The key lies in the spillover effect of the high performance of the corporate sector into the household sector. This will be an extremely important point when examining the sustainability of economic recovery or when considering what to emphasize in the new economic and fiscal policies.
• The current economic recovery began at the beginning of 2002, and is comparable to the postwar Izanagi boom, but there are opinions that today's business climate cannot actually be felt. Real economic growth rates during this period are low-some 2 percent annually-but economic recovery has continued for five years, following prolonged stagnation after the collapse of the bubble, while resolving its negative legacy in the process. The current economic recovery has occurred while businesses resolve issues of excessive employment, excessive debt and excessive plants and equipment. As a result, the structure of companies has been fortified; the environment today is one in which it is easier to make profits.
• The breakeven point ratio of firms has recently decreased from a 90 percent level in the mid-1990s to levels falling short of 80 percent; companies now have the power to endure a bit of economic fluctuation. The ratio of ordinary profits to sales has also risen to a level surpassing the bubble economy era, and the high performance of the corporate sector has gradually spread to households, although with a time lag. The unemployment rate reached 5.5 percent at its peak in April 2003; recently, it has improved to around 4 percent.
• In macroeconomic terms, when looking at wage cost in per-capita terms and by number of workers, the number of employed workers first turned positive in 2004. Per-capita wages also turned positive in 2005, leading us to believe, at least for a while, that the employment market had undergone some changes in the first half of 2005, but the growth in compensation of workers at constant prices has slowed since the middle of this year and, as if in step with that, growth in consumption has waned. Ever since this summer, it has hovered near zero, and total cash earnings at constant prices has become a factor for driving down consumption.
• The following can be considered as the background for sluggish growth in wages despite high-performing corporate profits and as a source of the pressure driving down wages.
  First is the change in the position of companies when making decisions on employment and wages. In the process of corporate restructuring, by increasing non-regular employment, the average wage level of employed workers was restrained and the labor share dropped. A high labor share has been a structural problem for Japanese companies since around the time of the bubble economy.
  At the same time, a shift from the conventional seniority-based wage system to a system based on performance kept personnel costs down and, furthermore, there is a possibility that the decline in the labor union's power in the wage negotiation process is weakening the pressure to drive up wages.
  Second is demographic change. Japan's aging society has brought about changes in the age structure within companies. Although the dankai (baby-boom) generation will begin to reach the retirement age of 60 in 2007, the retirement of the dankai generation has already begun. With this, a relatively high-paid group is being replaced by a growing younger-age group, driving down wages.
  Third is significant change in the economic environment as a result of globalization, the spread of IT, and other factors.
• Other various structural factors in the background of the trend in wages other than economic trends exist, but I hope that today, discussions will be held on key elements to spread the effect of economic improvement from the corporate sector to households. Concretely, I hope to hear discussion on what has had a decisive influence on the present mechanism of wage determination, and why high corporate performance is not spilling over into the household sector. As a background to this, an examination of the labor market should take the following into account:
• (1) Impact of the change in position of companies toward employment and wages (impact that the move toward non-regular employment, introduction of performance-based wages and change in corporate governance will have on corporate employment and wage trends)
  (2) Impact of the change in the economic and demographic structure (impact of the retirement of elderly employees and increased hiring of new graduates, import of labor-intensive goods as a result of economic globalization, and spread of IT)
  (3) Macroeconomic perspective (natural rate of unemployment, NAIRU (the level of unemployment at which wages do not accelerate inflation), level of natural rate of unemployment, adequacy of the current labor share).
• From the latter half of the 1980s to 1990, the environment surrounding the Japanese economy changed considerably. We saw the spread of the IT revolution, growth of Asian countries, emergence of world-class low-wage workers into the market, and advance of low- cost competition. Domestically, the aging society came into full progress. The Japanese economy needed to respond to substantial changes in the environment, but got caught up in the bubble economy and its aftermath, and the construction of mechanisms for the new economy fell behind. From now on, it is time to begin the construction of economic mechanisms that respond to great changes in the environment.
• While the reforms of the Koizumi Cabinet were aimed at removing heavy weights on the Japanese economy, the Abe Cabinet's reforms are aimed at opening up new possibilities for the Japanese economy. These coming years will be the last chance to lay out the foundation for growth of the Japanese economy, and so, the Council on Economic and Fiscal Policy considers the next five years as a period of transition toward an economy of new growth, and the following two years as the period of take-off for the growth economy. In accordance with this, the Council is holding discussions on seven priority areas of reform.
• During the economic stagnation that lasted more than ten years, the traditional way of thinking-based on lifetime employment and the seniority-based pay and promotion system-changed considerably. Moreover, entering a company not as a recent graduate but after having worked elsewhere, mid-career recruiting, and changing jobs became quite common. What's more, part-time workers are increasing, along with the younger-age group known as NEETs or freeters. However, a mechanism that responds to such changes in the labor market has not yet been sufficiently established, giving rise to a variety of problems, such as the concern for a widening inequality gap.
• From now on, as the drop in the labor force population accelerates and the globalization of the economy advances, an environment that allows people to work while attaining job satisfaction and the construction of a society that allows people to plan work and study on a double track will be required. So will measures to make this compatible with economic vitality. The Council on Economic and Fiscal Policy will establish a special investigation group to examine appropriate labor market reforms over the medium to long term, that is, in the ten or so years to come.

(Moderator)

• Ms. Ota made proposals concerning, first, the fact that the trends in wages and employment in the current labor market will be extremely important issues for future policymaking, and second, policies for future reform, including labor market reform for further progress, taking into consideration recognition of the present situation.

2. First Session

[Presentations]

(Yoshio Higuchi)

• A change in expansion of ordinary profits of businesses and stagnation of the compensation of employees can be observed in SNA statistics and other sources. From 1993 to around 1998 or 1999, ordinary profits rose when compensation of employees rose; there was a relationship of equilibrium between the two. However, this changed significantly from around 2000 and, although ordinary profits are increasing, compensation of employees is in stagnation or decreasing.
• On the other hand, as to the labor share, when the economy is doing well, corporate profits rise and the distribution ratio falls. To the contrary, when the economy takes a downturn, the labor share rises since personnel costs are fixed. This relationship was observed until around 1998, but after 1999 the distribution ratio fell, despite a poorly performing economy, showing movement that was different from before.
• As for the labor market, NAIRU and the natural unemployment rate stood at 2.43 percent in the 70s, rose to 3.3 percent in the 80s, and finally reached 3.95 percent in the 90s and onward. The immediate unemployment rate stands at 4.1 or 4.2 percent and is in a near state of full employment. Supply and demand is at a level where balance is maintained and growth in employment is observed.
• The reason for wages not rising can be found, first, in the change in composition of general workers and part-time workers; if the number of low-paid part-time workers increases, the average wage in general will fall accordingly. In the period between the first quarter of 1998 and the fourth quarter of 2005, the change in total cash earnings per capita represents an 8.1 percent drop in nominal terms, Of this, 6.2 percent can be explained by the rise in composition of low-paid part-time workers.
• The ratio of ordinary profits to sales by size of company shows that while large enterprises (more than 1 billion yen in capital) had already recorded a historic high of 5.2 percent in ordinary profit margin as early as 2005, medium and small-sized enterprises are still in stagnation, indicating a difference according to company size. As to the average wage, it is rising in large enterprises but not so in medium, small, and micro-sized enterprises.
• In terms of composition ratio of workers, up to now the Basic Survey on Wage Structure has published wages by type of worker, and figures have been negative since 1999 for both sexes combined.
• There is considerable difference depending on whether you look at total cash earnings, contractual cash earnings, overtime allowance, special wages, or bonuses. The total picture by total cash earnings shows a moderated increasing tendency even having entered this year. However, by contractual cash earnings, there has been a slight decrease starting this year, whereas extra-contractual cash earnings and overtime allowance have increased due to longer overtime work. Bonuses and special wages also show a moderate increase, but there is a big difference depending on company size. Although large enterprises show a large increase in special wages, this is not so for the others.
  Moreover, a significant increase in the ratio of part-time workers has contributed to the decrease in contractual cash earnings, which is occurring as a result of the change in the composition ratio of workers.
• The issue of regional gap is highly significant. In the Tokai region, the active job openings-to-applicants ratio is 1:8, whereas the situation of employment is severe around Aomori, where figures still fall short of 0.5. There is a big difference between discussions on macro and regional levels. Although a shortage of personnel exists in metropolitan areas, in the regions the employment situation remains severe. As a whole, however, the unemployment rate is almost at the same level as NAIRU, and equilibrium is beginning to form between supply and demand, if the gap between regular and non-regular employees and the gap between regions are not addressed, macro-level arguments will not be valid at the micro-level.
  On the contrary, even if wages earned, ordinary profits and wages are linked at the micro-level, if there is considerable difference in ordinary profit among companies of different size or between regions. Such a situation occurs where the aggregated results do not work according to theory at the macro-level.

(Yoshinobu Kobayashi)

• A look at the surveys on salary and wages published by the government shows that although total cash earnings in the Monthly Labor Survey are stagnating, there is an underlying tone of increase in salary and wage of employees at the start of this year, according to the Financial Statements Statistics of Corporations by Industry. This means that there is insufficient consideration for wages even though business performance is improving as a whole. Personal spending and surveys on wages show different results. Several factors account for this.
  First is the statistic itself -- a problem of sample. (A difference arises depending on whether there is a bias on medium and small-sized enterprises.)
  Second is the issue of the gap between the substitution effect of full-scale retirement and controlled hiring of new graduates. Because wages differ by 3 or 4 times, funds for wages can be kept low. Traditionally, labor unions have referred to this as "the rate of internal relocation (naiten-ritsu)" and, as a whole, it has had a restraining effect on total personnel costs.
  Third, regarding factors that have a definitive impact on wages and employment, two factors form a combination: the bonus effect in the short term, and non-regularization of employment as a structural factor.
• A look at the change in the ratio of added value to sales from 1960 to 2005 for Japan's big three industries (iron and steel, electrical machinery, and transportation machinery) shows that it is dropping in general. But from the 1990s onward, the electrical machinery industry makes a continuous drop, whereas the ratio of added value increases in the automobile industry.
• The labor unions of the big three industries controlled national wages from the 1970s onward, and the rate of wage increase advanced in step with each other. But going into the 1990s, there was a change in the situation concerning added value, making it difficult to maintain the same rate of wage increase. Wages would be adjusted to the lower industries of iron and steel and electrical machinery, while lump-sum allowances would be provided as a distribution based on performance to the automobile unions that were not satisfied with those wages. Thus, as a result of the change in behavior by both labor and management, there would be a large difference in bonuses, depending on the industry and company thereafter.
• Among large enterprises, some industries were unable to provide a lump-sum allowance of five months' salary after 2002 from the conventional 17 months' salary per annum, but from last year to this year, a five months' salary bonus has returned with economic recovery. However, this is not so for medium and small-sized enterprises. Furthermore, non-regular employees do not receive a bonus to begin with, and this leads to a difference in income. Accordingly, consumption is not uniform either.
• There is the structural factor of non-regularization of employment. Looking at total figures for employment in national plants of the electronic machinery industry, regular employment fell in the 1990s, but, on the contrary, non-regular employment grew. Overall, the number of employed crawled sideways. The restructuring of employment in the 1990s was not a reduction in employment, but rather a substitution of regular employees with non-regular employees. In some plants of Japan's leading companies, the percentage of non-regular employment has grown to 70 or 80 percent, but such workers do not appear directly in Japan's wage statistics.
• Until now, wage statistics only covered regular workers, but this year's wage census included an edition on non-regular employees (Wage Census Vol. 5), which shed light on the actual situation of the wage of non-regular workers directly employed by companies. However, the situation remains that official wage statistics on temporary dispatch workers (haken) and subcontracted workers (ukeoi) do not exist.
• What is actually occurring is that the group with an annual income of 3 to 4 million yen is losing around 1 million yen in wage income as a result of non-regularization and reliance on temporary dispatch workers, resulting in what can be considered a gap-widening society. Measures must be taken that will rectify the wage structure, which is divided by regular and non-regular employment, and redistribute the divided structure once again.

(Robert A. Feldman)

• To begin with, concerning statistical data I get the impression that there is a problem of sample and that statistics on wages and statistics on consumption are being mixed. In addition, there is question of quality of data, all of which leads to extreme confusion. The key is for Japanese statistics to regain international trust. In particular, consistency between data on volume and data on wage is sought.
• Second is the question of whether the economic model that we are using is correct. Looking at the cycle of inventories of the Izanagi economy and the current one, in the growth rate of production and inventories, respectively, based on the principle of maximization of profit, during the Izanagi economy there were sharp fluctuations in the growth rate of inventories (production adjustment can be costly but inventory adjustment is not), but the current inventory circulation indicates the opposite, meaning that production adjustment is fluctuating. It appeared as if spring of 2003 was the peak, but it moved back and forth after that as if to lead one to believe that companies had quit maximizing profit. In the end, the cost of production adjustment and the cost of inventory adjustment were reversed. This is because the product cycle has become extremely fast and companies do not want to hold on to inventories. It would be misleading to try to figure out wages in the conventional cycle. Using the correct model is an extremely important point.
  It is said that profitability (company margin, ratio of ordinary profits to sales) is extremely high today, at unprecedented levels, but when a comparison is made using data from abroad and maintaining consistency, Japan's profitability is still low. There is doubt as to whether the correct model is being applied.
• Third is the issue of focus. There is a need to discuss this matter on wages based on the actual problems the Japanese economy currently faces. Because the number of employees will decline further due to the aging society, businesses need to raise their capital equipment ratio; a key element will be whether the wage system will contribute to the raising of the capital equipment ratio. It would have an opposite effect if the labor share were raised unreasonably, thereby hampering investment in plant and equipment. Equilibrium is sought.
• Concerning income, wages from companies to households are important, but on the other hand, so is financial income. This depends on how to promote high-income activity and high-added-value activity. What is required to raise financial income is a thorough deregulation of the actual economy, industries and businesses, rather than focusing on financial issues.
  Furthermore, concerning the issue of labor income, in an aging society, an educational system for a second job is necessary, which is why I propose a theory of retirement at the age of 40. Presently, many people are tied down by the pension system, but if there is no system that forces you to think about your next stage of life at a certain point, workers would not acquire skills for themselves.
  Concerning the need for regional revitalization, a system that encourages the over-concentrated population in cities to return to regions is required.
• Finally, it is necessary to kick the butts of business managers. Companies achieving high profitability are paying high wages, but this is profitability that comes not from restraining wages but high wages that come from a management that redistributes resources. What is required is governance toward management or an entrepreneurial system that exposes company management to competition. This is also a key to raising wages.

(Naohiro Yashiro)

• "Somebody must be responsible for exploitation if wages are not rising in such a long-lasting boom that exceeds the Izanagi boom. We only need to fix that part." This sort of simplistic thinking is a mistake.
• Business has thrived since the beginning of 2002, making it the longest boom in the postwar era, but it has continued amidst Japan's first deflation, meaning it has continued because there is no build-up of capital stock nor of stock in inventory, nor is there any pressure for economic adjustment. Therefore, we cannot say that there is an economic boom just because the period of prosperity has lasted for some time. The first point is that this is a long-lasting prosperity where employment demand does not increase much.
• The employment demand pattern in Japan until now has been basically centered on regular workers. Even during the period of zero growth at the beginning of the 1990s, regular employees increased on average while non-regular workers hardly increased. It was a time of temporary recession as a reaction to the period of the bubble economy and companies were hiring on a full scale, assuming that, sooner or later, business would make a quick return to prosperity. However, since 1997, growth rates fell sharply once again due to fiscal problems and the East Asian crisis. Starting in 1997, companies began to have a strong awareness that it was not just a problem of the business cycle, but a structural problem. This began to appear in the demand for employment in 1998, resulting in a large reduction of regular employment and, on the contrary, an increase in non-regular employment..
• It is said that companies used low-cost non-regular workers because of deregulation, but basically, it is largely due to the drop in the economy's growth. It was at this time that the awareness grew that, if it were a temporary recession, companies can hold on to their regular employees, but in a long-term recession adjustment must be made in employment by reducing regular employees. Otherwise, the company and workers will go down together.
• There is also the impact of globalization. Although wages will rise in export-based industries-since demand will grow and demand for employees is also strong--in labor-intensive companies that are exposed to import substitution, demand drops, workers decline, and wages also fall. Thus, there is a phenomenon of polarization at the company level as well.
• The labor share is also greatly affected by the business cycle since in Japan it is difficult to make employment adjustments despite business fluctuations. There is no guarantee that the labor share will stop dropping once it has reached equilibrium, so there is the possibility that overshooting will occur to some extent.
• Looking at the balance in saving and investment by institutional sector, at around the beginning of the 1990s, an ideal situation existed in which the household sector had excess savings, the entrepreneurial sector had excess investment, and the government and current accounts were nearly in equilibrium. However, after this, entrepreneurial savings began to increase rapidly. At the beginning of the 1990s, entrepreneurial savings were on the rise, with the writing off of bad loans and repayment of debts, but entrepreneurial savings kept growing even after that. In contrast, household savings decreased. Unlike the twin deficits in the United States, Japan has a fiscal deficit, but it posts a surplus in current accounts. Therefore, the biggest cause is entrepreneurial savings.
• Entrepreneurial savings do not spread into households, basically because wages are not raised since there is a downturn in employment demand. The key elements are an increase in employment demand that would drive wages upward, or a tight demand for employment due to a decline in the labor force resulting from the aging of society being reflected on wages.
• In a period of high growth, sales rose, corporate profits rose, and companies increased production in pursuit of more profit and, naturally, hired workers. This was the arrangement back then. Today, however, companies are making profits as a result of corporate restructuring that was carried out to cope with the low growth that followed the bubble economy. Companies are extremely sensitive to future prospects of the economy, but in this situation, in one aspect companies are not benefiting sufficiently from production activity at home since a large part of their business depends on overseas activities. There is need to shift to an internal demand-oriented economic system, in which demand and employment are created at home.
• The shift to non-regular employees is advancing since employment security costs for regular employees have risen greatly. This is so that it would be easier to reduce the cost of maintaining employment in a time of recession; it is an employment adjustment in advance, so to speak, with an emphasis on adjustment in a time of recession.
• Wage cost is not just wage; it combines wage with productivity. Even with a high wage, if workers work harder, in the end corporate profits will increase. Saying simply that cheaper wages are better presumes that all workers are unskilled and it comes from a mistaken awareness. What is important for companies is the cost of employment security at the time of recession rather than the wage level. And since there is an understanding that this cost is higher in a period of stagnation than in a period of high growth, there will be no drastic increase in regular employees unless this kind of understanding is corrected.

[Free Discussion]

(Moderator)

• The common understanding on the situation of a weak rise in wages on one hand, and the phenomenon in which large ordinary profits of companies are not resulting in a rise in wages on the other, is that the Japanese economy has been forced to undergo major structural changes during the 1990s. How can we understand the structural background and the process that would allow corporate profits to result in workers' profits in future economic growth?

(Higuchi)

• There were important turning points in 1997 and 1998. There were big changes in the trend of corporate profits and wages, the shift from regular to non-regular employees occurred, and, furthermore, the shift in the number of employees by sex. Male employment peaked in 1997 and 1998, and has dropped since then, whereas female employment continues to grow. An explanation for this is that employment in nursing care, medical care, and the service industries, where there is a high ratio of female employment, is growing as a result of a big changes in the industrial structure.
  At the same time, there is a big change in wages. Female employment grew, but most consisted of non-regular workers. The adjustment of regular employees is through hours of service, but the adjustment of non-regular employees is through number of workers. To keep personnel costs down as much as possible, raising extra-contractual cash earnings and giving bonus payments only to regular employees has occurred since 1998 in the form of structural change.
• The feeling that there was excessive employment as a result of poor business climate was strong among business managers, but from 1998 onward, the desire to avoid fixation of costs grew stronger as companies began to be characterized by a strong awareness of structural impact, in particular, the influence of globalization and IT. As a result, hours of service and overwork time of regular employees are being adjusted.

(Moderator)

• Adjustment of regular employees through hours of service was well observed at times of recession, even in the past when the system of lifetime employment was more active. So why is it that recently, adjustments must be made in the form of non-regularization?

(Higuchi)

• For one thing, there is the issue of employment security for regular employees. It seems that business managers strongly feel that increasing the number of workers would not just be an increase in labor input at a certain time, but rather something that would continue to have an influence thereafter.
  At the same time, due to the increase in non-regular employees, the ratio of regular employees drops and when making adjustments in hours of service, it spreads in the form of extending work hours and overtime of regular employees more strongly than ever. There is a complete division of assignments, where regular employees are assigned jobs with considerably high levels of responsibility, while non-regular employees are assigned simple tasks. As a result of increasing non-regular employees, there are fewer people that can respond flexibly. Similar to the issue of wages, hours of service must also be addressed as an issue of polarization.

(Moderator)

• According to what we have heard, there were various structural changes in the labor market. Is it correct to understand that a sort of adjustment period is necessary for corporate profits to spread into households and that we are currently in this adjustment process?

(Yashiro)

• Yes and no. Employment adjustment can be made with time, but under the present system, it would unnecessarily take too much time. The understanding is that a reform of the system is urgent.
• Not only is it a matter of change in industrial structure, the drop in the expected growth rate on the part of businesses is large. Employment practices in Japan are long-term employment security and seniority-based wages. It is understood that these work extremely well to stabilize employment, but this is so only with high growth. It hasn't been applicable since the 1990s and it was in 1998 that companies began to take notice of it.
• In that sense, while the substitution of regular employees by non-regular employees rapidly advances, there is opinion that the gap between regular and non-regular employees should be eliminated by turning non-regular employees into regular employees. However, this is an extremely unrealistic idea. At times of recession, companies have protected the employment of regular workers by using part-time workers, which are non-regular employees, as an adjustment valve, not to mention adjustment in the hours of service. The disparity between regular and non-regular employees per se is indispensable in the internal labor market of companies. The gap was not newly created by regulatory reform. What actually happened was that the gap that had already existed was put in the spotlight as a result of the long-term economic slump. Under low growth, quite some time is required to make adjustments for this.
• To eliminate the gap between regular and non-regular employees, the biased opinion of companies that regular employees with employment security will respond flexibly to overtime work, change in positions and transfers must be eliminated and the distribution of roles of both sides should be balanced out to mutually reduce the burden of each side.

(Moderator)

• Professor Kobayashi pointed out that the redistribution of income between non-regular and regular employment must be considered as a policy measure in the future. Is it correct to understand that this does not contradict the adjustment process mentioned by Professor Yashiro?

(Kobayashi)

• It is not a contradiction. By doing so, we must think of raising the entire level while making such adjustments as the redistribution of income.
• 1997-98 was the mega ice age for securing employment. It was also a period in which the spring labor offensive was called the 100-yen-coin spring offensive. The hiring of new graduates was restrained, but companies still held fear and anxiety over continuing to hire 18-year-old high school graduates and 22-year-old university graduates for 40 years. It was a period in which the life span of a company was said to be 30 years, as well as a period to come up with a structural response since they were not facing a cyclical recession. An awareness common to both labor and management that there will be no return to the past brought about the change in employment behavior. Starting at this time, manufacturing plants of Japan's leading companies began to use subcontracted workers on a full scale.

(Moderator)

• In Mr. Feldman's presentation, there was proposal for change in employment practices and introduction of a retirement-at-40 theory, as well as mention of a change in corporate behavior regarding the capital equipment ratio and securing of profit in the aging society with a declining birthrate that we face. In relation to this, from now on, how should the employment market change?

(Feldman)

• During the period of high growth, everything was based on affiliation; the key was whether or not you belonged to the company. But each worker and company must change this principle based on affiliation. Employment should be considered on the basis of both workers' skill and human resources required by the company and the division and assessment of being a regular or non-regular employee, productivity levels and wage levels must be cleverly thought out under a single framework.
• In the field of finance, you think of risk and return. Since non-regular workers are paid poorly, the demand for them grows because they are convenient for companies in both aspects. From now on, both companies and workers must think of a risk-return profile for themselves; the creation of such a market is the key.

[Q&A Session with the Audience]

(Floor)

• When you talk about non-regular workers in Japan, although they may be called part-time workers, it's not that they work part-time. They are made to work in the same way as regular employees. Female part-time workers tend to have accomplished academic backgrounds, and in some cases, although they work in the same way as regular employees, they must be hired as part-time workers. Their skills are inadequately used. The current division of regular and non-regular employees becomes a problem for making the best use of workers' abilities.

(Higuchi)

• We may refer to part-time workers as one, but the content of their work is diverse; while there are some that have responsibilities and duties close to that of a regular employee, others are assigned simple tasks. It is an actual problem that part-timers are not assigned responsibilities equal to that of a regular employee due to the perception on the part of business managers that they cannot be trusted with work bearing heavy responsibilities or high-level tasks.
• Although all are non-regular employees, there is considerable difference according to whether you are a part-timer, a subcontracted worker, or a temporary dispatch worker. If you are a part-timer worker, you have the same employer as regular employees, you work in the same workplace, and you receive feedback when corporate profits rise. However, if you are a temporary dispatch worker or a subcontracted worker, you may work in the same workplace, but since you have a different employer and company, there is no incentive for the dispatch company or the subcontractor to raise your wages even if the profit of the receiving company rises. Wages are determined in the labor market. On the other hand, wages are also determined by reflecting corporate profits. Such a separation exists, and it makes it quite different from the conventional debate over non-regular employees.
• The difference in the relationship between company and workers, in which regular employees are provided life security by companies and non-regular employees are not, is being questioned.

3. Second Session

(Moderator)

• Concerning the "Labor Big Bang,&quot the challenge is to create a labor market that will enable a multi-linear working style that is fair. Discussion for reform has just begun.

[Presentations]

(Yashiro)

• What needs be done for a further increase in employment wages? The basis for this is not strengthening regulation, but promoting growth. The key point is to increase employment demand by raising growth potential. To raise employment demand by expanding public finance is unrealistic and undesirable.
  Concerning the enhancement of competitiveness to respond to globalization, there are still many industries seeking inward protection, but from now on it is necessary to raise the national industry's competitiveness by using imports and inward direct investment as leverage. Therefore all obstacles blocking newcomers' access must be eliminated.
• In the labor market, workers' income will rise and the productivity of the economy as a whole will also rise by promoting labor mobility from low productivity sectors to high productivity sectors. Reform of the labor market is required and, under current labor laws, we will not be able to respond to the coming age of low-growth globalization and aging society.
• Current employment practices basically presume that women do not work, and are structured on three protections: the head of household protects the family, the company protects that family, and the government protects that company. As with other industrialized countries, it should be made a system where it is taken for granted that women work in the same way as men, according to their abilities and will. For this, there is need to eliminate various barriers in the labor market.
• A barrier due to gender and the form of employment is the gap between regular and non-regular employees. The employment security of regular employees exists under the assumption of adjustment in the employment of non-regular workers. Furthermore, among regular employees, the principle reason for the wage gap between genders is seniority-based wages. While the problem of rank exists, many companies believe that female workers cannot be trusted with important assignments. Rather than holding on to the idea that long working hours lead to production output, general rules that include diverse working styles, such as part-time work, are necessary because the barrier between working styles of men and women will become considerably smaller through a working style that is efficient and highly productive, even if working hours are short.
• Until now, what mattered was whether you had employment security. But with dual-income households becoming more common, rather than the need for employment security, the desire to choose one's occupation and workplace becomes much stronger. Regarding a working style that is compatible with raising a child or a working style that meets the needs of persons with disabilities, the problem is that present employment practices assume the worker to be the household head who can work long hours; what is sought is the creation of an occupation-specific labor market that makes it easy to change jobs, and a system of tax and social security that is neutral to diverse working styles.
• In the coming aging society, because there will be an increase in advanced-age human resources, neither the labor market nor the Japanese economy will be able to function without relying on this group. The reason for Japanese companies requiring a mandatory retirement system arises from a separate restraint that does not allow companies to dismiss workers, even if they lack ability, until they reach retirement age. If it becomes possible for companies to annul the employment contract by taking certain compensatory measures based on due process when the needs of the company and the worker do not match, there will be no need for a mandatory retirement system.
• As to the public-private barrier, what is sought is the opening up of mechanisms of vocational training and job placement that are disproportionately available to the public sector as opposed to the private sector. An efficient mechanism of vocational training is sought by expanding market testing and by forming ties between the public and private sectors.
• It is extremely inefficient that school education up to university focuses entirely on studying for exams to find employment in a large prestigious company. There should be a tie-up with vocational training that will be useful in society. It seems that, basically, educational reform will not have any effect if it is not linked with labor market reform.
• Concerning employment support for freeters and NEETs, it should focus on those who are forever influenced by the fact that there happened to be a recession when they graduated from university or high school. It is important that the opportunity for mid-career hiring be expanded; to accomplish that, it is necessary to raise growth and, at the same time, form a labor market with greater mobility.

(Kobayashi)

• I mentioned in the First Session that there has been progress in the non-regularization of employment, but non-regular workers consist of part-timers, subcontracted workers, temporary dispatch workers, and contract workers (keiyaku shain). When considering the benefit for companies in using non-regular workers, the essence lies in the use of temporary employment.
• Although some have advocated turning everybody into regular workers, the new industrial reality in the 2000s is that if non-regular employees and temporary staff are eliminated, low- cost products cannot be made, nor can resident services be provided. We have reached a point where we must consider stable employment and treatment after recognizing the existence of non-regular workers.
• The recent problem of "disguised contracting&quot (giso ukeoi) occurred in a loophole of the provision of law. If regulations are tightened in one area through revision of the Worker Dispatch Law, in the market, employment will necessarily shift to another area where the regulation is milder. There are several labor laws concerning non-regular workers such as the Law on Part-time Workers, the Law on Worker Dispatching Undertakings, and the Home Labor Law. To strengthen regulation, the improvement of workers' treatment should be attempted by establishing a single law of protection to regulate as a whole in a single undertaking, instead of through individual laws.
• Another problem is the issue of equal treatment. A newspaper article reported that one labor union would demand an average of 2.6 million yen as an annual bonus per worker for the coming year, but this is more than one year's pay of a temporary dispatch worker or a subcontracted worker. Raising the entire wage and treatment level of the so-called non-regular workers is necessary. Regarding minimum wage, currently in regions it is determined based on the minimum wage in Tokyo. Therefore, while working toward "raising the tide&quot for everyone, at the same time it is necessary to strive for improvement in employment conditions of non-regular workers.
• Figures say that one third of the nation's work force is comprised of non-regular workers. One third of non-regular workers-a total of 16 million workers-could be turned into regular employees, the other one third would remain non-regular-although accompanied by a thorough attempt toward equal treatment-and the remaining one third would be those lacking ability or those wanting to work more freely. A part of this last group would find itself overlapping with the labor market of foreign workers, trainees, and technical interns. Therefore, they would be a group that requires the benefit of a raise in the standard of minimum wage and, on the other hand, the support of society's safety net such as technical training, educational assistance, and livelihood protection. Rather than saying what to do with a population of 16 million, an employment policy can be developed more smoothly because what needs to be done for each group is implemented by category.
  By doing so, the under-3-million-yen income group that I brought up before as a problem will be brought back to their original group, since their income had dropped by about 1 million yen. For this, I am thinking of a "Japanese-style work sharing,&quot in which we take 1 million yen each from the 7 to 9-million-yen income group. A measure that is set forward in a form agreed upon by leaders of the government, management, and labor is necessary. Moreover, the recovery of the middle-income group-by attempting a standardization of income in toto-will lead to the rectification of the gap and the stability of society.

[Free Discussion]

(Moderator)

• On the upcoming labor market reform, Professor Yashiro brought up the proposal for a labor "big bang." I understand that this aims at eliminating barriers in the labor market, increasing the mobility of the labor market and creating a labor market that can allocate the labor force more effectively through deregulation, but on the other hand, there is concern over the possibility of a widening gap.
  Professor Kobayashi indicated an approach of a sort of Japanese version work sharing safety net in which the labor market is categorized, so to speak, by labor skills, or even by non-regular and regular workers.

(Higuchi)

• My conclusion is that whether a labor big bang is necessary depends on its content. Presently, the revision of laws relating to labor, including the Law on Part-time Workers, Labor Standards Law, Labor Contract Law, and regulation on labor hours, is advancing individually, but it lacks a complete vision. It also lacks a debate on how the labor market is to be considered from now on, and an explanation of why a certain part needs to be changed at this time. If the big bang is a direction indicating the complete picture, then it would be necessary.
• On the issue of gap, it is no mistake that in the background of the rapid rise in non-regular employees from around 1998 lies the problem of growth rate and change in the future outlook on the part of business managers. At the same time, however, several questions arise when I think about deregulation and reform.
• Concerning deregulation of the Worker Dispatch Law, there was agreement on the understanding that an expansion in the kind of work and an extension in the period of dispatch were necessary for expanding employment and creating jobs at that time. But in the case of Europe, equal treatment was also reinforced at the same time in a response to the widening gap. On the Law on Part-time Work, although a little late, this point is being debated now.
• The problem is that in Japan, occupation-specific labor markets do not exist, whereas in Europe, equal treatment is sought by workers in the same field of work or with the same job responsibility surpassing the wall of companies. The fact that wages are determined by each company-since such a market does not exist-is becoming an extremely big obstacle. The creation of an external labor market is required as employment strategy and we need to think of creating an occupation-specific external labor market. There is the possibility of inviting confusion in the labor market if the debate over white-collar exemption is carried out and made true without a clear understanding of each individual's occupational duties.
• This procedure must go step by step. As a first step, it is necessary to clarify the occupational duties-what what is expected of the worker-of each company. Then, accordingly, the issue of a social evaluation of abilities in an external labor market would also surface. I think that as matters stand, equal treatment is a subject in rhetoric only, without concrete measures to respond to it. It is desirable that the creation of an employment strategy to correct this aspect is examined in the big bang.
• (Note)  The next paragraph was added in the process of compiling the minutes, at the request of the speaker, to clarify his remarks.
• Considering the actual state of society, it would seem that what is important is the procedure. That is to say, whether we should begin with the easing of regulations on personnel cuts and dismissals or with the construction of an occupation-specific external labor market. If only the regulation on dismissal is eased while the cost of changing jobs remains high, the people's concern will grow, and feelings of resistance are bound to strengthen.

(Moderator)

• When speaking of an employment strategy, who is responsible for such strategy?

(Higuchi)

• Society as a whole should be considered, not just the government. It also involves the role of each worker, the role of individual companies, and the role of company unions. The issue of local governments is also significant nowadays. We touched on the topic of regional disparities, but an employment platform throughout the country through public works that existed until now is unthinkable. Concerning regional employment strategy, each actor must play a role without fail. Only then will market reform as a whole be realized.

(Feldman)

• Regarding the issue of disparity, this should be considered not only in terms of wages but of productivity as well. A wage gap as a result of productivity output should exist; it would be wrong to discuss this issue without considering productivity. The key is to carry out the discussion with a premise of what the reform is for.
• Furthermore, whether the objective is to protect jobs or to create jobs, employment is extremely important. There are many people who wish to maintain the status quo, but we do not live in that kind of world. If productivity is growing, wages should be increasing on a net basis. Between creation and preservation, the focus should be on creation.
• Furthermore, whether the objective is to protect jobs or to create jobs, employment is extremely important. There are many people who wish to maintain the status quo, but we do not live in that kind of world. If productivity is growing, wages should be increasing on a net basis. Between creation and preservation, the focus should be on creation.

(Yashiro)

• The labor big bang is a contrast to the financial big bang. The financial big bang was based on the idea of removing formidable barriers that hampered market efficiency in the financial market in which banks, trust companies, and security companies operated. The world of labor is also one with vertical divisions based on individual laws; the key is whether they are truly laws for workers.
• In the age of high growth, you were better off clinging to companies than stepping out into the external labor market, but in the age of low growth that is to follow, companies cannot protect employment. The most important thing is to make it easy to find another job position in the occupation-specific labor market when the company goes bankrupt or when you are dismissed by company restructuring. Rather than saying that the external labor market is underdeveloped, it is a result of regulations hampering the development of such a market until now.
• There are two ways to improve workers' wages and working conditions: by pushing for a raise in wages in collective bargaining by joining a union, or by improving wages and working conditions by moving to another company. However, Japanese workers were effectively deprived of the latter choice. There were various regulations that considered the external labor market to be evil and obstructed it, but it is important to reverse this situation.
• Concerning the wage gap, which has become an issue, the gap between large enterprises and medium and small-sized enterprises is extremely large. Before the labor market changes, large enterprises raised profits by doing business with companies within their own group (keiretsu), benefiting from low wages in medium and small-sized enterprises. If an occupation-specific labor market is developed, the gap between workers will be rectified. This is not deregulation, but regulatory reform, and although labor market barriers and employment practices exist, removing these will lead not to the widening of the gap, but to its reduction. The present gap problem is about workers in large enterprises with vested interests such as seniority-based wages taking advantage of the truly weak. In one respect, they are trying to protect their vested interests.
• A safety net is important; simply providing a system of minimum wage is not enough. Vocational training is also necessary. A situation in which skills are acquired and abilities are enhanced only by entering large enterprises should cease to exist and the function of vocational training should be outsourced. Rather than the currently existing Public Employment Security Office Hellowork, or public vocational training, it should be in a form that makes full use of the private sector's expertise. The government would be responsible for training and free job placement, but the implementing agency can be from the private sector. The private sector would do a better job at matching because it will raise productivity by using its diverse expertise to integrate training and job placement.
• Using private-sector job placement and training will raise productivity and create a labor market not only of business managers but also of a variety of workers. This will result not in a widening of the gap, but in a reduction of it, in counterbalance with productivity. Productivity must be enhanced to raise wages. To do so, it becomes necessary to raise wages. Supporting this publicly is one goal of the big bang.

[Q&A with the Audience]

(Feldman)

• Someone commented that not creating an external labor market is, in one sense, all about protecting those with special privileges. But who, exactly, are the ones with special privileges? How can the recognition of this fact be beneficially applied in the upcoming reform?

(Yashiro)

• The ones keeping external labor markets away are the business managers of large enterprises and labor unions. Business managers had built a system of wages that does not allow workers who have trained at their own cost to flee. Labor unions have done the same. If a private-sector job placement business is developed, it will become a commercial enemy for labor unions. But from the standpoint of workers-since their options are to rely either on labor unions or on a private-sector job placement business-both alternatives should be provided. Labor unions should compete with the human resource business in the field of market competition. Competition will be necessary for both companies and unions from now on.
• Another matter is the relationship of affiliated companies (keiretsu). Through a sort of discrimination in which large enterprises and their workers use low-paid medium and small-sized enterprises to their advantage, consumer surplus and producer surplus have been maximized. Under high economic growth, it was possible to maintain internal labor markets per se extremely efficiently, but the system has not been modified with the end of high growth and it cannot be maintained.
• One interest group that can help defeat this problem is the people outside the privileged in-house labor market (especially women and people of advanced age). The re-challenge policy targets these groups.
• Another point is that the price that one must pay for regular employment security is too big. Chronic working hours, frequent change in positions, transfers, and such are extremely painful for dual-income households. Such diverse pressures are not being absorbed sufficiently by personnel divisions or labor unions.
• A labor big bang is not something that the government creates on its own. It is expected that desirable forms of contracts be built through the supply-and-demand relationships between companies, labor, management, and markets after the government provides conditions that allow the creation of all sorts of labor contracts. It is important that the government adequately provide a safety net, while individuals not benefiting from internal labor markets unite to destroy the barrier of vested interests in internal labor markets.

(Moderator)

• In the past 10 or 15 years, Japan's labor market has undergone huge structural changes. Against the background of globalization and competition, The Japanese economy-with its aging society, declining birthrate, many demographic changes-has reached a phase where it must make a large-scale change away from the conventional Japanese-style employment market. The opinion of the professors here today is that growth must be secured by transforming problems, such as corporate profits, that do not lead to a rise in wages or to sluggish consumption in positive ways.
• Concerning the creation of a labor market, the reform required must be in a form that removes vested interests in the conventional market and that ensures employment and wages that correspond to workers' productivity. At the same time, it must also provide a safety net for the weak. The labor big bang is not simple deregulation; its greatest objective is to reduce the gap and create a structure for the Japanese economy that can achieve more growth by reforming various types of regulations in the labor market.

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