Japan labor debate risks higher corporate costs

TOKYO (Reuters) - Mounting layoffs of temporary workers as the recession deepens have catapulted unemployment to the top of Japan's political agenda in an election year, raising fears of a regulatory backlash that could drive firms offshore.

The timing of the debate, which is intensifying as lawmakers gear up for an election that could see the long-ruling Liberal Democratic Party lose power, is politicizing a complex problem that requires hard choices about how to protect workers without cutting corporate competitiveness.

"Everyone wants to go back ... to the Japan of the 60s, where there was strong employment and growth," said Martin Schulz, an economist at Fujitsu Research Institute.

"But that is not the economy that we are in.

"Japan desperately tried to keep jobs in the country while companies were investing abroad, so they made the labor market more flexible ... If they are going to turn back the clock on that in the crisis, companies will leave even faster."

Japan is not alone in worrying about unemployment. A recent 22-nation survey showed the global economic crisis has made fears of joblessness the top concern, surpassing worries about poverty, social inequality, crime and violence.

Japan's jobless rate rose to 3.9 percent in November, a far cry from the 7.2 percent hit in the United States in December.

Officials say the small rise masked an exit of discouraged workers from the labor force, and have forecast that 85,000 non-regular workers, including temporary workers, would lose their jobs between October 2008 and next March.

NOSTALGIA FOR PAST

The specter of a rising jobless rate that could engulf regular employees is also reviving nostalgia for a bygone employment system and fanning criticism of a harsher U.S.-style capitalism that detractors say Japan should have shunned.

"The deregulation that weakened the Japanese economy, the dangerous financialization of the economy ... these came from an ideology that held that globalization would create wealth, in other words, from an adoration of U.S. financial nationalism," said a commentary in the conservative Sankei newspaper.

After a decade of corporate cost-cutting and labor market deregulation, more than a third of all employees in Japan are non-regular workers without job security -- part-timers, contract workers and temps. That's a sharp contrast from the 1980s, when more than 80 percent of workers had job security.

Extensive media coverage of some 500 homeless people who spent the New Year holidays in a tent village in a Tokyo park after losing temporary jobs has fixed attention on the problem of non-regular workers, among whom temps are the most vulnerable.

While firing regular, full-time employees in Japan is legally tough, laying off contract workers and temps is easier since they can be let go simply by not extending their contracts.

Nor are fixed-term employees usually members of the enterprise-based unions typical of Japan's organized labor.

Opposition parties have seized upon the topic in their attack on unpopular Prime Minister Taro Aso and his ruling coalition.

The main opposition Democratic Party, partly under pressure from its leftist smaller allies, is proposing a ban on the dispatch of temps to manufacturing firms. This was allowed under legal changes implemented five years ago that were aimed at giving corporations more flexibility in adjusting labor costs.

"We need to revive the good points of companies in the past that saw people and employees not as things or 'parts' but as family," said the Democrats' No.2 leader, Yukio Hatoyama.

POPULIST PROPOSALS

Aso has sounded a cautious note, but his labor minister, Koichi Masuzoe, has said he personally favors a ban.

"It's a terribly bad idea. But since the opposition has proposed a ban, the LDP is trying to accommodate it," said Naohiro Yashiro, an economics professor at International Christian University.

"It's quite populist," said Yashiro, who served on a panel of economic policy advisers to then-prime minister Junichiro Koizumi, under whom rules on the dispatch of temps were eased.

Japanese companies' scramble to cut labor costs has also ignited a debate about "work sharing," a broad concept that involves reducing employees' work hours while protecting jobs.

But experts say unions and employers are at odds over how to implement the practice, including whether basic income levels should be maintained and non-regular workers included.

"When Toyota shuts down for 11 days, and cuts bonuses, yes ... they do share the burden, but temps are a separate category," Schulz said.

Toyota Motor Corp (7203.T) this month announced a halt of production at its Japanese plants for 11 days in February and March in response to slumping demand.

With the Democratic Party scenting victory and the LDP fearing a fall from power for only the second time in its 53-year history, economists worry the jobs debate is taking a wrong turn.

Instead of rolling back deregulation, many say, Japan should bolster its safety net for non-regular workers with better unemployment insurance, health and pension benefits.

"The real problem with temp workers is the problem of the safety net and ensuring good working conditions," said Keiichiro Hamaguchi at The Japan Institute for Labor Policy and Training.

For all the sound and fury, legislation tightening rules on temps seems unlikely to be enacted ahead of an election given a divided parliament, and doubts exist over how far the Democrats would push re-regulation if they do win power.

"Unemployment and the labor market are huge new themes and they haven't really prepared much on this," said Takashi Sasaki, a political science professor at Gakushuin University in Tokyo.

But he added: "There are inducements to tighten regulations as a way to win popularity."

(Editing by John Chalmers)