(Repeats item first published on Monday with no changes to
By Antoni Slodkowski
TOKYO, June 24 When Prime Minister Shinzo Abe
vowed at the World Economic Forum in Davos to take a "drill bit"
to the "solid rock" of vested interests in reforming Japan's
economy, executives at companies such as General Electric
and IBM paid attention.
In the months that followed the January appearance at Davos,
blue-ribbon panels sought out GE and IBM for advice on how to
give companies more flexibility in hiring and pay.
But the labour market deregulation to be announced on
Tuesday, as part of an economic package aimed at boosting
investment in Japan and lifting growth, stops far short of the
sweeping change foreign business leaders had sought.
That marks a setback at a time when investor optimism about
the pace of "Abenomics" reforms has ebbed. The Nikkei
stock index, a closely watched indicator for Abe's closest
advisors which rose more then 50 percent in 2013 as investors
cheered the first blast of Abenomics, is down 5 percent this
"Changes in labour regulations will be incremental. It's a
step forward, but it's not that big," said Robert Feldman, chief
economist at Morgan Stanley MUFG in Tokyo.
The story of how Abe's promised deregulation faltered on job
market reforms when confronted by resistance from Japan's
bureaucracy and political controversy illustrates the challenge
for Abe's "Third Arrow", a growth strategy intended to boost
private investment and compliment earlier programmes of fiscal
stimulus and monetary expansion by the Bank of Japan.
Although Abe's reform panel sought ideas from companies such
as Ikea and Danone in recent months, the
crucial decisions were made behind closed doors by about half a
dozen Tokyo bureaucrats over a few days in June, according to
interviews with 11 people who participated in the process.
The result: a pledge to end compulsory overtime allowance
for workers earning more than the equivalent of $100,000 per
year, a change affecting less than 4 percent of Japan's workers.
The more contentious question of how and whether to make it
easier for companies to fire workers was left unanswered with
the government pledging to find a "place for debate" on the
issue next year. Both rules on overtime and firing will be
further discussed in a council at Japan's Ministry of Health,
Labour and Welfare, where unions have a strong voice and have
made it clear they will fight to prevent change.
"It's true that right now it is only limited to the group
which supports competitiveness the most, but I think it is still
meaningful to offer them to be able to work according to new
rules," said Makoto Murayama, the labour ministry official in
charge of negotiations.
"We can't go ahead looking only at the economic impact, but
also have to protect the workers and gain the understanding of
LONG HOURS, LOW PRODUCTIVITY
At a London event targeting foreign investors in May, Abe
seemed to promise a lot. "Japan's population is declining. In
order to grow, we must raise productivity," he said in answer to
a question. "We need to reform labour market regulation in order
to make working conditions more flexible."
Abe's comments suggested that he was aiming at an overhaul
of Japan's lifetime employment system. That entrenched practice
gave workers secure jobs until retirement and was a feature in
Japan's astonishing economic rise in the 1960s and 1970s. But it
has been unravelling since an asset bubble burst in the 1990s
and proponents of reform argue that a freer job market would
lift growth and incomes.
"This is a system that was built up over 30 or 40 years bit
by bit," said Junji Annen, Chuo University Law School professor
who advises on one of Abe's reform panels. "No one thinks it can
go on like this, but they are scared to change it."
The Japanese work long hours, but remain far less productive
than workers in the United States or the European Union. Rules
on firing are complicated and the outcome is uncertain for
employers. In part because of the unpredictable costs of
restructuring in a downturn, employers are reluctant to hire
full-time. Almost 40 percent of workers are in a temporary class
with limited protections and fewer benefits.
Between the start of the year and April, representatives of
Abe's economic reform team sought ideas from foreign companies
such as Procter and Gamble and Unilever on
the changes they wanted to see in labour regulation.
In March, John Rice, GE's vice chairman, appealed directly
to an Abe-appointed panel on foreign investment to give
employers more flexibility and make it easier for employees to
move between companies.
"If labour mobility is high, productivity would go up and we
could take on the challenge of managing through the business
cycle," Rice said, according to a transcript of the Japanese
IBM, which has clashed with Japanese unions over its
dismissal of workers who received below-average appraisals, was
also consulted, officials involved in the process said.
GE confirmed its executives talked to the government and
provided the transcript of Rice's appearance at the panel. IBM
Japan's spokesman Takeo Tamagawa declined to provide the details
of consultations, but said that two main issues discussed with
the government were the flexibility of working arrangements and
a working culture in which workers were evaluated based on
performance, not the time spent at work.
Japan's rigid labour laws allow almost all workers to claim
overtime if they work more than eight hours a day or 40 hours a
week, with a narrow exception for executives and some
Labour unions say the rules prevent abuses and "karoshi",
the coined-in-Japan term for death by overwork.
"The people who die by overwork in Japan are mostly white
collar workers," said Yosuke Minaguchi, a lawyer specializing in
labour law. "These are not labourers toiling in factories but
they also need protection."
For his part, Abe has wanted to take on overtime rules since
his first brief stint as prime minister in 2006 and 2007,
officials involved say.
But a plan to carve out a "white collar exemption" for
overtime in Abe's first term met strong opposition and
contributed to a decline in his support ratings. This time,
advisers say, he wanted to make sure that any reforms would not
be characterized as an attempt to strip hard-working voters of
overtime that could cost him support.
"The prime minister had one request. To clarify to the
public the difference between this proposal and the previous
one," said Futoshi Nasuno, a Ministry of Economy, Trade and
Industry official who prepared drafts of the policy proposals.
After the consultations that included IBM and GE, the
advisory panel proposed two kinds of exemptions from overtime
allowance - one for mid-level managers and creative workers and
another based on income for high performers earning more than
about $100,000 per year, a threshold taken from a precedent in
the United States.
Then, in late April, Asahi Shimbun, Japan's second-largest
newspaper, ran a front page story that raised questions about
whether the exemption was so broad it would amount to a "no
overtime pay" policy. The leak of the plan put the advisory
panel on the defensive, officials involved said.
Wary of a public backlash, Trade ministry officials from the
government's reform taskforce decided to narrow their demand to
seek an exemption only for those earning more than $100,000. The
exemption was so limited that officials decided not to even run
an economic simulation of what it would mean for growth or
Around the same time, trade ministry officials who were
pushing reform were running up against resistance from the
labour ministry on the wording of the final policy plan.
"We were pushing to get specific dates and implementation
periods for our projects into the bill. We asked for concrete
words like 'establish' and 'create'. The labour ministry would
come back with 'consider' or 'study' and vague commitments for
implementation," Akiko Sugahara, who joined the government
reform taskforce from business lobby group Japan Association of
Corporate Executives told Reuters.
Foreign investors had asked for changes to Japan's labour
law, which gives broad discretion to judges in settling
dismissal cases. As a result, labour-related cases take on
average, twice as long as other civil cases, court data show.
In the end, the Abe plan commits only to further debate on a
"dispute resolution system" by stakeholders. Labour unions are
already girded for a fight.
"We don't need this new system," Nobuyuki Shintani, director
at the Japanese Trade Union Confederation, Japan's most powerful
labour union, told Reuters.
(Editing by Kevin Krolicki and Alex Richardson)