VZCZCXRO9272
PP RUEHFK RUEHGH RUEHKSO RUEHNAG RUEHNH
DE RUEHKO #0952/01 1140531
ZNR UUUUU ZZH
P 240531Z APR 09 ZDK
FM AMEMBASSY TOKYO
TO RUEHC/SECSTATE WASHDC PRIORITY 2553
INFO RUEHBJ/AMEMBASSY BEIJING 8985
RUEHUL/AMEMBASSY SEOUL 5007
RUEHFR/AMEMBASSY PARIS 6505
RUEHKSO/AMCONSUL SAPPORO 4233
RUEHNAG/AMCONSUL NAGOYA 1363
RUEHOK/AMCONSUL OSAKA KOBE 7498
RUEHFK/AMCONSUL FUKUOKA 3696
RUEHNH/AMCONSUL NAHA 6034
RUEHGH/AMCONSUL SHANGHAI 0574
RUEHHK/AMCONSUL HONG KONG 6766
RUEATRS/TREASURY DEPT WASHDC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHC/DEPT OF LABOR WASHINGTON DC
RUEHBS/USEU BRUSSELS
RHEHAAA/NSC WASHDC

UNCLAS SECTION 01 OF 02 TOKYO 000952 
 
SENSITIVE 
SIPDIS 
 
DOL FOR ILAB 
DEPT FOR DRL/ILCSR AND EAP/J 
USTR FOR AUSTR CUTLER, BEEMAN, AND HOLLOWAY 
PARIS FOR USOECD 
 
E.O. 12958: N/A 
TAGS: ELAB EFIN PGOV JA
SUBJECT: EMPLOYMENT ADJUSTMENT SUBSIDY APPLICATIONS RISING 
 
REF: A. TOKYO 850 
     ¶B. TOKYO 514 
 
Summary 
-------- 
¶1. (SBU) Company applications for the GOJ's Employment 
Adjustment Subsidy have increased dramatically over the past 
six months and now cover more than 2.9 million workers.  The 
program is designed to keep workers on a company's rolls 
rather than put them in unemployment or other social safety 
net schemes, according to government officials, and new 
provisions provide incentives for companies to hold on to 
contract and "dispatch" workers.  Program funding in the 
regular FY2009 budget is inadequate and it appears additional 
funding will be provided as part of PM Aso's supplementary 
budget proposal.  Given the holes in Japan's unemployment 
insurance scheme, the program may be an effective way to 
channel relief to workers, but it could distort the 
unemployment picture and reduce the flexibility of the labor 
market.  End summary. 
 
Applications for Subsidy Up Sharply 
----------------------------------- 
¶2. (SBU) Company applications for the GOJ's Employment 
Adjustment Subsidy increased dramatically in the past six 
months, according to statistics from the Ministry of Health, 
Labor, and Welfare (MHLW).  In September, 107 companies 
applied for funds to support 2,970 workers.  By February, the 
latest statistics available, monthly applications had jumped 
to 30,621 companies covering 1.9 million workers.  Aggregated 
between April 2008 and February 2009, companies applied for 
funds for more than 2.9 million workers -- almost 250 times 
higher than the 11,730 workers targeted in the comparable 
2007-08 period.  Approvals for the payments are significantly 
lower, but nevertheless are also rising rapidly -- monthly 
approvals tripled from January to February -- and typically 
lag applications by several months, according to MHLW 
officials. 
 
Employment Adjust Subsidy: The Basics 
------------------------------------- 
¶3. (SBU) Japan's Employment Adjustment Subsidy is designed to 
keep workers on a company's rolls rather than in unemployment 
or other social safety net schemes, MHLW officials report. 
The aim, they said, is to minimize the substantial costs to 
companies and workers that come with terminations, job 
searches, and retraining.  Moreover, the program includes 
incentives for additional worker training during work 
slowdowns or stoppages. 
 
¶4. (U) Companies that see a five percent decline in either 
production or sales over a three-month period (vis-a-vis the 
comparable period in the previous year) qualify for 
assistance.  Japan's Labor Standards Law requires companies 
to pay 60 percent of a worker's basic pay during layoff 
periods, and payments under the program go to defray that 
cost.  There are also payments available to support worker 
training during layoff periods. 
 
¶5. (U) The payments differ by company size.  For large 
companies, funding under the program can cover 75 percent of 
mandated layoff wages and up to 1,200 yen per employee per 
day for training costs.  For small and medium-size 
enterprises (SMEs), the funding can cover 90 percent of 
mandated layoff wages and up to 6,000 yen per employee per 
day for training costs.  (Note: MHLW recently increased the 
payments to the listed 75 percent for big companies and 90 
percent for SMEs.  The payments were formerly 66 percent and 
80 percent, respectively.  End note.) 
 
¶6. (U) The overall payment benefit is capped at 7,730 yen 
 
TOKYO 00000952  002 OF 002 
 
 
($77) per day per employee.  Once a company qualifies, it 
remains eligible for 12 months, at which point the company 
can be re-evaluated for another year's benefits. 
 
Program Expansion: Contract and Dispatch Workers 
--------------------------------------------- --- 
¶7. (SBU) To preserve employment of so-called "non-regular" 
workers, specifically those on fixed-term contracts or 
temporarily on "dispatch" from staffing agencies, MHLW added 
measures April 1 that give companies incentives to cut the 
overtime of regular, career workers instead of firing 
temporary staff or decreasing their numbers through an 
attrition policy of letting short-term contracts lapse. 
Non-regular workers, MHLW officials noted, have been among 
the hardest hit by the economic downturn and are among the 
least likely to qualify for unemployment benefits. 
 
¶8. (U) A company becomes eligible for the benefits if it can 
show that, over the past six months, it has reduced average 
worker overtime by at least half (with a minimum five hour 
reduction) and has not reduced its workforce through layoffs 
or attrition of non-regular workers.  A company is allowed 
some flexibility to account for normal personnel turnover, 
but is required to maintain a sizable workforce, defined as 
at least 80 percent of the personnel it employed six months 
earlier.  Qualifying large companies receive a lump sum of 
200,000 yen a year for fixed-term contractors and 300,000 yen 
a year per dispatch worker.  Small and medium-sized 
enterprises receive 300,000 yen per year for fixed-term 
contractors and 450,000 yen annually per dispatch worker. 
Companies may not claim benefits for more than 100 "saved" 
workers. 
 
Budgeting 
--------- 
¶9. (SBU) Asked about costs and budgeting for the Employment 
Adjustment Subsidy, MHLW officials were coy and claimed the 
Ministry does not have a good cost projection for the 
program.  They pointed out the FY2009 budget sets aside 58 
billion yen (about $580 million), but conceded that amount -- 
at around $300 per worker application for the month of 
February alone -- will be insufficient. 
 
¶10. (SBU) Citing ongoing discussions within the government, 
MHLW officials declined to speculate on what funding may be 
allocated under a proposed supplementary budget.  Prime 
Minister Aso's outline of the fiscal stimulus package 
supported by the budget (ref A) gives a headline figure of 
2.5 trillion yen ($25 billion) in spending for "strengthening 
employment."  Actual new spending will be less, however, and 
it is unclear what programs will fall under the umbrella of 
the employment measures that are to be strengthened. 
 
Comment 
------- 
¶11. (SBU) The increasing use of the Employment Adjustment 
Subsidy, while keeping workers out of official unemployment 
statistics, is one more indicator of how hard the economic 
downturn has hit Japanese companies.  Given the deficiencies 
of Japan's unemployment insurance scheme (ref B), the program 
may be an effective way to channel relief to workers who 
would otherwise fall through the holes in the country's 
social safety net.  The program's name, however, is somewhat 
ironic, as its measures can keep workers at struggling firms 
and reduce the adjustments that would make for a more 
flexible and dynamic labor market. 
 
ZUMWALT