February 28, 2018 / 9:06 AM / in 4 months

Dodgy data casts cloud over Japan PM's labor reform push

TOKYO (Reuters) - Japanese Prime Minister Shinzo Abe’s plan to revise labor laws, a key part of his economic reforms to boost growth, is facing political headwinds after the government admitted using flawed data to back up its proposals.

FILE PHOTO: Japan's Prime Minister Shinzo Abe gestures as he makes a speech at an opening of a new session of parliament in Tokyo, Japan January 22, 2018. REUTERS/Kim Kyung-Hoon/File Photo

Abe has pledged to pass in the current session of parliament, which ends in June, laws that make the labor market more flexible and allow a more efficient allocation of resources. The changes would be a key part of the so-called “third arrow” of his signature economic policies, which focuses on structural reforms.

However, the government’s admission earlier this month that data used to support the proposals contained errors have prompted opposition parties opposed to some of the reforms to insist the government go back to the drawing board.

While Abe’s hefty majority in both houses of parliament means he could easily push through the legislation, doing so could risk a perception of political overreach as he extends his reign into a sixth year.

At the same time, failure to enact the reforms would be a embarrassment and disappoint business executives who want to see the scope for performance-based merit pay expanded to help boost productivity in the world’s third-biggest economy.

“Abe has only two choices - to push through the legislation or reconsider and delay its submission to parliament. Whichever he takes, it would deal a blow,” said Atsuo Ito, an independent political analyst.

On Wednesday, Abe told a parliamentary panel the government would not forge ahead with the legislation until it clarified the facts called into question by the flawed data, a step he said could take “quite some time.”

Abe came to office in December 2012 promising to revive the economy with “three arrows” of his “Abenomics” policies: hyper-easy monetary policy, fiscal spending and structural reforms. Critics say he has lagged on the third part of this agenda.

The overhaul would be the first major reform of labor laws in 70 years and businesses are keen to see two reforms in particular.

One would expand the categories of highly skilled and highly paid professions with no limits on working hours.

The other would expand a system of “discretionary labor” where employees are regarded as having worked a certain number of hours and paid a fixed wage regardless of how long they work. The flawed data related primarily to this aspect of the proposals.

Japan ranks below its Group of Seven peers in labor productivity due to chronically long working hours and lower value-added output, according to OECD data. Government data shows average annual working hours per Japanese worker at 1,719 hours, shorter than South Koreans at 2,113 hours and American workers at 1790, but longer than other G7 countries.

“A delay in the legislation’s passage will clearly be a setback for Abe, given a consensus among policymakers, markets and academics that labor market reform is crucial for the Japanese economy,” said Takuya Hoshino, an economist at Dai-ichi Life Research Institute. He added that the proposed changes were limited and “symbolic” but a step in the right direction.

Abe’s Liberal Democratic Party has yet to sign off on the bills. Some lawmakers, worried about a backlash, have suggested removing the proposal to expand the “discretionary labor” and “highly paid professionals” categories - the very reforms of most interest to businesses, media reported.

Also included in the reforms is a legal cap on overtime of 100 hours per month - an effort to end phenomenon of “karoshi” - or death from overwork. The issue of brutally long hours at many Japanese firms grabbed attention in 2015 when a 24-year-old employee at advertising giant Dentsu Inc committed suicide. The government later ruled she had died of “karoshi”.

Critics on one side of the debate have said that cap would effectively condone a level of overtime that is harmful to workers’ health. On the other side, some economists say setting the cap reduces management flexibility.

“The work-style issue is extremely important for Japan, which needs a more flexible labor market ... to reallocate labor more effectively, otherwise the economy cannot grow and cannot sustain the social security system,” said Robert Feldman, an economist at Morgan Stanley MUFG Securities in Tokyo.

“But my view is that this set of labor laws would not have a significant positive effect ... It might be better if they try again.”

Additional reporting by Kaori Kaneko; Editing by Sam Holmes

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