Many foreign observers of Japan don’t get past the “lost decade/deflation” headline. They miss the fact that Japan has a robust export sector and continues to run high trade surpluses, despite the supposed difficulty of advanced economies competing with emerging markets.
But how has this outcome been achieved? As Michiyo Nakamoto tells us in a Financial Times comment “Poverty widens the cracks in Japan’s facade,” by squeezing workers. Japan in a generation went from a system of lifetime employment to high use of part-time and temporary workers, The latter have poor earnings over their working years and face poverty in their middle age. Worse, Japan has comparatively weak safety nets (one of the reasons for its high savings rate) and less reliance on extended families than some other cultures.
Now America also has a working poor, but it does not include the college educated in large numbers. In Japan, graduates during the “lost decade,” save those who attended elite universities, are at risk of not landing a permanent job and thus suffering from marginal attachment to the workforce. Could America be heading down Japan’s path?
From the Financial Times:
Not long before representatives of the world’s richest nations convened in Toyako for the glitziest event in the history of this remote Japanese fishing community, a very different scene unfolded just a few hundred kilometres south. Angry day labourers in Nishinari, Osaka, threw stones and firebombs at riot police, overturned a car and set fire to garbage, venting their frustration at their inability to find work.
The violence, which involved an estimated 200 people and went on for two days last month, was a long way from the serene facade that Japanese society normally presents to the world. But the riots were just one extreme manifestation of the social cracks that are appearing in a country that has often, if half-jokingly, been referred to as the world’s most successful socialist state.
Following more than a decade of economic stagnation, Japan is no longer the gentle place it used to be for the weaker members of its society.
In a relatively short time, the world’s second largest economy has been transformed from a cohesive, egalitarian society to one saddled with the ills of the neo-liberalist model: a growing underclass, social alienation, widening income disparities and simmering discontent. The country’s once-vaunted social and labour contracts have failed to keep up with the changes wrought by globalisation, leaving a large number of people barely managing to survive.
Although unemployment in Japan, at about 4 per cent, is by no means high, the number of so-called “working poor”, who earn less than Y2m ($18,600, €11,800, £9,400) annually – a level considered to be close to, if not at, the poverty line – has risen at an alarming rate. In 1997, 5m workers fell in that category but by last year the number had doubled to 10m, according to a government survey.
The rise in working poor stems largely from a sharp increase in non-regular workers as Japanese companies restructure their workforces to cut costs and remain globally competitive. Non-regular workers, including part-time workers, temporary workers and others, comprise more than a third of the total workforce, according to government statistics. In addition, there are at least 1.8m “freeters”, who take on whatever temporary jobs they can find and generally have no benefits. Thousands of freeters, in their 20s and 30s, sleep in internet cafés and are unable to find stable employment because they lack a permanent address.
Japan’s minimum wage, at Y687 an hour, is in danger of falling to the lowest level among Organisation for Economic Co-operation and Development countries once the US implements legislation to raise its minimum wage. Japan is still, relatively speaking, an egalitarian society, where income disparities are nowhere near as large as they are in many western societies. But the old social and labour contract – which promised income stability, assured that hard work would be rewarded, healthcare would be within everyone’s reach and people could retire knowing that their pensions would keep them off the streets – no longer applies to a considerable proportion of the Japanese public.
There is growing concern that spreading poverty is leading to an increase in suicide, crime and the divorce rate and even aggravating Japan’s falling birth rate. “Poverty is not just a situation of low wages but isolation from society, from family, friends and workplace,” says Tsuyoshi Takagi, president of the Japanese Trade Union Confederation. “Japan’s silent public is reaching the limit [of its patience],” he says.
As public frustration has grown, the finger is being pointed at past policies of deregulation, particularly of the labour market. There are calls for tighter regulation, higher taxes on the rich and a redistribution of wealth. In a bid to placate a worried public, the government has responded with plans to ban – in principle – the contracting of unskilled day labourers.
But in an era of global competition, turning back the clock on labour reforms would be a simplistic response to a complex problem. A labour contract based on lifetime employment and seniority, coupled with companies hiring straight out of college, rewards those already in the system with stable employment, pay and benefits, no matter how unproductive they may be, says Naohiro Yashiro, professor of labour economics at the International Christian University. It also penalises those who have slipped through the cracks, regardless of their potential.
Many of the working poor are those who, having failed to secure a place within the system to begin with, become destitute as they grow older and their chances of finding even part-time work decrease. Many freeters, for example, cannot find full-time work because Japanese companies are reluctant to hire anyone who has not been in stable employment. The system also discourages much-needed venture businesses, since the opportunity costs for anyone who dares opt out of it are prohibitively high, Prof Yashiro says.
Japan, no doubt, needs to rebuild its social safety net, with greater security for its ageing population and measures to improve conditions for those outside the regular workforce. But unless Japan can also find a way to promote labour mobility and allow those who have fallen out of the employment system to come back in, it may not be too far-fetched to conceive of the social unrest witnessed in Nishinari spreading to other parts of the country.