What Japan's restructuring missed: a social security net

Must Japan always lag? First, it lagged in neo-liberal capitalism. Then it caught up with the Reagan and Thatcher revolutions 20 years late and deregulated the labour market in the 1990s and early 2000s. Now, it is scrambling to protect its newly 'casualised' labour force after hitting the worst recession since 1945. According to figures from the Japan Manufacturing Outsourcing Association quoted by Bloomberg News, 40,000 'casual' jobs are forecast to go by March -- at a time when unemployment has already hit 4%.

Under pressure to deleverage following the epic 1980s asset bubble, and pushed by Wall Street ideas of corporate governance (where shareholder returns are the only God), Japanese firms merged and acquired each other in record numbers in the 1990s. They also slashed salary costs by converting hundreds of thousands of regular jobs into casual jobs. Casual jobs refer to cases where the employer is working with a recruitment agency to fill its non-core positions. For a flat fee, the agency takes on all the administrative and moral burden of hiring and firing employees.

Around one-third of all jobs have been thus 'casualised' in Japan. And, unlike in the past, these jobs are no longer mainly taken by married women, supplementing their husbands' incomes. In fact, young, single men and women are taking up casual jobs for lack of anything better. At the lower reaches of casual labour, these workers often don't get paid enough to pay social welfare contributions, and they are excluded from the benefits formerly provided by companies. The state should step in to fill the gap, but is doing so reluctantly.

Unlike with a regular job, these casual workers can also be fired at any time -- the company simply tells the agency it wants to terminate the contract and the casual worker is re-assigned, or told to stay at home. The cost savings are substantial. An experienced female secretary looking after a floor of executives will work for ¥200,000 ($2,200) per month for an agency. In the first year, she won't get any annual leave and after that she won't get more than 10 days. For this kind of white-collar worker, health and pension contributions are paid from salary deductions. But plenty of casual workers in small companies, restaurants and building sites only get the minimum wage, or around ¥122,000 per month.

In the past, an employee with 'regular' status would have cost its company two to three times that amount. Companies formerly did not make a distinction between core and none-core workers and tended to ready their employees for family life and retirement by gradually increasing their salaries as they got older, and allowing them to retire with big lump sums.

The Japanese social security system does have some advantages. Western-style welfare provisions, mainly focused on childcare, education, women and the elderly, were introduced in the 1970s when the Japan Socialist Party was still a political threat. Efforts were made to roll back those reforms in the booming 1980s, but the economic stagnation of the 1990s reversed that.

As it now stands, the system looks reasonably complete, but it is infused by a very different ethos to the one in the United Kingdom, for example. In the UK, the system provides a very basic payment of $100 per week, known as 'income support'. Literally anybody is eligible for this income, even foreigners living in the UK. This has the great advantage that people don't starve to death in the street or in their flats (unlike Japan!). Beyond that basic level, people in the UK can apply for an old-age state pension, free health coverage, tax credits for the low-paid, and housing allowances/free government housing. Unemployment benefits are therefore just part of a dense mesh of poverty alleviation measures.

The Japanese ethos is more puritanical. Medical costs are subsidised by 70%, for example, rather than 100%. And benefits take the form of insurance, rather than welfare. In other words, you only get paid in bad times if you have contributed in good times. The application process is stricter than in the UK, with suspicious and powerful case officers dropping around for home visits. Resigning from a company means you have to wait three months for unemployment benefits; and you must have worked at least six months in the past year to qualify. Unemployment benefits cease after one year.

The main problem is thus that while core constituencies of the economy are protected (those with regular jobs, married mothers, and old people who have paid unemployment and pension contributions), the welfare system does not sufficiently cover the workers who have been marginalised in the interests of efficiency. It is this number which has been growing, especially following former Prime Minister Koizumi's labour market reforms in 2004. These people, on low wages, may be unable to pay unemployment, health and pension contributions.

Germany has a hybrid system whereby workers work half-time for half-pay -- but the state makes an extra contribution, leaving the worker with around two-thirds of his original income. Japan urgently needs to find a similar role for the state to help out on this looming social problem.