VZCZCXRO1737
PP RUEHFK RUEHGH RUEHKSO RUEHNAG RUEHNH
DE RUEHKO #0514/01 0650855
ZNR UUUUU ZZH
P 060855Z MAR 09
FM AMEMBASSY TOKYO
TO RUEHC/SECSTATE WASHDC PRIORITY 1298
INFO RUEHBJ/AMEMBASSY BEIJING 8116
RUEHUL/AMEMBASSY SEOUL 4138
RUEHFR/AMEMBASSY PARIS 6446
RUEHBY/AMEMBASSY CANBERRA 3063
RUEHKSO/AMCONSUL SAPPORO 3367
RUEHOK/AMCONSUL OSAKA KOBE 6608
RUEHFK/AMCONSUL FUKUOKA 2817
RUEHNAG/AMCONSUL NAGOYA 0609
RUEHNH/AMCONSUL NAHA 5164
RUEHHK/AMCONSUL HONG KONG 6714
RUEHGH/AMCONSUL SHANGHAI 0540
RUEATRS/TREASURY DEPT WASHDC
RUEHIN/AIT TAIPEI 7267
RUEHBS/USEU BRUSSELS
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHC/DEPT OF LABOR WASHINGTON DC

UNCLAS SECTION 01 OF 02 TOKYO 000514 
 
SENSITIVE 
SIPDIS 
 
DOL FOR ILAB 
PARIS FOR USOECD 
 
E.O. 12958: N/A 
TAGS: ELAB ECON PGOV JA
SUBJECT: DUAL LABOR MARKET ROOT OF PROBLEMS, NEEDED REFORM, 
SAYS ECONOMIST 
 
REF: TOKYO 174 
 
Summary 
------- 
¶1. (SBU) The split between "regular" and "non-regular" 
workers is key to understanding Japanese labor market 
weaknesses and the need for change, a leading labor economist 
told econoffs.  Japan's social safety net was built for the 
regular, career workforce in a model that worked from the 
1950s through Japan's high-growth decades.  Economic 
stagnation in the 1990s changed underlying conditions, 
however, and labor market institutions have not kept pace. 
Unfortunately, many politicians fundamentally misunderstand 
the structural shift and, the former Council on Economic and 
Fiscal Policy expert noted, what needs to be done about it. 
End summary. 
 
Duality of the Labor Market 
--------------------------- 
¶2. (SBU) The split between "regular" and "non-regular" 
workers is key to understanding Japanese labor market 
weaknesses and needed policy responses, International 
Christian University labor market economist and former 
Council on Economic and Fiscal Policy (CEFP) member Naohiro 
Yashiro told econoffs during recent meetings.  Contrary to 
the belief currently popular in Japan, the part-time, 
temporary, and contract non-regular workforce did not begin 
under the 2001-2006 Koizumi administration's structural 
reform drive. 
 
¶3. (SBU) The duality of the labor market goes back to the 
1950s, when non-regular workers were mostly married women 
seeking to supplement household income.  Yashiro explained 
Japan's social safety net was built for that market, with few 
pension and unemployment benefits provided to non-regular 
workers.  The idea was households could absorb the layoffs of 
non-regular workers, because heads-of-household typically 
received benefits and safety net coverage through a regular 
job. 
 
¶4. (SBU) Moreover, Japan's high-growth decades made 
companies' focus on regular workers and labor stability an 
economically rational example of profit-seeking behavior. 
High growth rates correlate with short recessions, said 
Yashiro.  Therefore, maintaining excess employment during 
recession periods was a good investment, given the payoff 
that came during boom times.  Laying off workers and training 
new ones, after all, entail both monetary and opportunity 
costs for companies. 
 
Economic Changes Not Matched by Institutions, Policy 
--------------------------------------------- ------- 
¶5. (SBU) The underlying conditions that made the model work 
changed with Japan's economic stagnation in the 1990s and 
subsequent weak growth.  Companies' profit motivation is no 
different, said Yashiro, but the number of those with high 
enough growth to support the regular worker model has 
declined.  The number of non-regular workers as a percentage 
of the workforce has gone from 16 percent in 1985 to 34 
percent today. 
 
¶6. (SBU) The real problem, Yashiro concluded, is that Japan's 
social safety net, institutions, and labor policies have not 
changed to match economic reality.  At more than one-third of 
the workforce, many non-regular workers today are 
heads-of-household, yet they often do not qualify for 
unemployment benefits.  When they do qualify, they receive 
smaller and shorter payouts, because the program is set up 
like a pension and rewards longevity at a single company. 
Thus, a non-regular worker can fall through the holes in the 
safety net after a layoff and plunge into a precarious 
 
TOKYO 00000514  002 OF 002 
 
 
financial situation.  If the worker is the head of a 
household, a whole family can be dragged down. 
 
Politicians "Totally Misunderstand" Situation 
--------------------------------------------- 
¶7. (SBU) Many politicians, in both the ruling Liberal 
Democratic Party (LDP) and opposition Democratic Party of 
Japan (DPJ), "totally misunderstand" the situation, said 
Yashiro.  Those politicians have sought to tie the rise in 
non-regular employees to former PM Koizumi's structural 
reform drive, deregulation, and "excessive market 
fundamentalism."  They, along with some union members and 
company managers, are nostalgic for the Japan-as-Number-One 
1980s.  However, they do not understand it is impossible to 
regulate into existence a workforce model that depended on at 
least four-to-five percent annual economic growth. 
 
¶8. (SBU) Recent legislation to expand the scope of Japan's 
unemployment scheme therefore will have little impact, said 
Yashiro.  Reducing the time it takes to become vested in the 
system will increase access for non-regular workers, but the 
pension-like structure of the system still means non-regular 
workers will receive far less in unemployment benefits than 
their regular counterparts.  Yashiro also asserted that labor 
unions are fighting against greater payments to non-regular 
workers because they are trying to protect the amounts of 
funds available for their own members. 
 
¶9. (SBU) Despite his downbeat assessment of labor 
institutions, Yashiro suggested there is hope.  He noted 
Japan's last serious economic downturn had resulted in PM 
Koizumi's election, and he argued neither the LDP nor DPJ is 
courting the many "discouraged" Japanese who favor reform. 
Perhaps the current economic crisis, he suggested, will spur 
needed change to labor market institutions. 
 
Comment 
------- 
¶10. (SBU) We admire the clarity of Yashiro's economic 
analysis, but note he is an inveterate optimist about reform. 
 
 
 
ZUMWALT