Human Resources

October 2002

The Labor Ministry compiled a regulatory reform plan to extend the maximum contract period of job for part-time and contract workers from one year in principle and three years for certain professionals to three years and five years, respectively. According to the ministry, the change will help increase employment alternatives, which will in turn boost employment. Along with proposed revisions to the unemployment insurance system, the ministry intends to include the latest plan in the government's anti-deflation measures and submit a bill to revise the Labor Standards Law during the regular Diet session next January. Currently, more than seven million people are working under contract. Under the Labor Standards Law, the contracts are basically for one year and have to be renewed if employers wish to continue to keep workers after the year is over. By extending contract periods to three years, workers will gain more stable employment than is currently available, as the new system will offer more flexibility in setting up such contracts; an individual could be hired for the two-year period necessary to prepare for preparations for a new project. The Labor Standards Law currently allows a contract ceiling of three years for employees with highly specialized skills. The ministry seeks to extend this period to five years. The professions in this category are those with national licensing, such as lawyers, certified public accountants and doctors, as well as individuals who finish a doctorate or master's program and have more than two years of work experience for the job they intend to secure. In February, the Labor Ministry issued an order adding to the occupation types included in this category. The additions include individuals with private but not national certification in such areas as data-processing technology and pension actuary work. However, the ministry has yet to determine whether they should get five-year contracts. The ministry also intends to revamp the unemployment insurance system, with changes that would pay part-time workers unemployment benefits for the same number of days as full-time workers. The ministry also plans to include in its regulatory reform plan changes that would make it mandatory for employers to clearly state to job seekers the terms of employment and the reasons for possible termination of employment. And the plan features measures that would require employers who do not plan to renew a contract to give at least 30 days notice as well as an explanation. The Labor Standards Law states retirement within the employment rules, but not dismissals or firings. By clarifying beforehand the types of situations that may entail a dismissal, the Labor Ministry hopes to avert problems between employers and employees in the future. (October 30, the Nihon Keizai Shimbun)

With the decision by the government and ruling coalition to compile a supplementary budget for fiscal 2002, ministries and agencies are fleshing out anti-deflation measures that focus on the creation of measures to maintain employment and to support small and midsize companies. For its employment measures, the government is eyeing a plan to move up its allocation of special subsidies to create jobs in regional areas, a program slated to last until the end of fiscal 2004. Under the program, prefectures and municipalities hire jobless as forestry workers, teachers' aides and support staff for local police. By having the public sector help absorb the unemployed temporarily, the government will be able to create jobs for 500,000 workers. About 140 billion yen has been set aside for this fiscal year, while another 200 billion yen is slated to be spent for fiscal 2003 and fiscal 2004. But by moving up the spending, the government would expand immediate help for the unemployed until they find work. Funding for the program in the latter years would have to be included in the supplementary budget. The Labor Ministry is considering extending the program's length. The ministry is also floating a proposal to create a new subsidy for public-sector employment in such areas as nursing care and social welfare. This would aim to give practical training to the unemployed from ailing industries such as construction and shift them into sectors with growth potential. Without regulatory reforms carried out simultaneously to encourage growth in hiring by private-sector companies, the government will not be able to create enough jobs to absorb the significant increase in unemployment expected in the wake of accelerated bad-loan disposals by banks. According to a forecast by NLI Research Institute, if banks nationwide dispose of some 27 trillion yen of loans to borrowers categorized as in danger of being bankrupt or worse, the jobless are expected to reach 1.13 million people, enough to possibly push down Japan's gross domestic product by around 1%. Meanwhile, the Ministry of Economy, Trade and Industry (METI) is concerned about a credit crunch from the accelerated cleanup of bad loans. As a countermeasure, it is eyeing a safety net plan to expand government credit guarantees on loans to small and midsize firms. Funding for the program is expected to be roughly 900 billion yen short by fiscal 2005. To prepare for the acceleration of bad-loan disposals, METI believes the program will need funding of around 3 trillion yen. Unless the credit guarantee associations that administer the program can obtain funding through reinsurance, they will become more cautious in providing guarantees. Funding through reinsurance is expected to run dry at the end of this fiscal year, so METI plans to strongly lobby for government money for the program from the supplementary budget. The government plans to allocate a large proportion of the proposed supplementary budget to such areas, but to truly revitalize the economy, steps such as deregulation and urban investment that would help create private-sector demand are needed. In fact, the safety net proposals described above are merely temporarily support from the public sector to help the economy through a transition period. Unless there are structural changes to industry and a sustained reinvigoration of the private sector, the unemployed and ailing firms may not be absorbed back into the economy. To revitalize the private sector, the Council on Economic and Fiscal Policy has been discussing such measures as easing building regulations, enabling the entry of stock companies into medical and educational fields, and encouraging ailing companies to change sectors. (October 26, the Nihon Keizai Shimbun)

The Ministry of Health, Labor and Welfare Tuesday proposed inserting a rule prohibiting companies from firing employees without valid reasons into the Labor Standards Law. The rule, proposed by the Labor Policy Council, an advisory panel to the health minister, would allow dismissed employees, who are dissatisfied with how they were fired, to settle lawsuits through damage payments by their former employers, if a court rules the dismissal to have been invalid. Currently, even if a court comes up with such a verdict, the only way to compensate a dismissed employee is to allow them to return to their former workplace. For employers, the new rule could be construed as legalizing employee dismissals. For employees, meanwhile, it could be seen as making it impossible for employers to fire employees without a valid reason. The ministry expects the rule to curb easy employee dismissals, while making it easier for employers to fire problematic employees. Currently, the Labor Standards Law forces companies dismissing employees to give them either 30-days notice or pay them compensation worth at least 30 days. It does not mention the terms of their dismissals, leaving the decision on the validity of their dismissals to the courts. European countries, such as Germany, have a law allowing the settlement of a legal battle between former employees and employers via monetary payments. The labor ministry is set to submit a related bill to the next regular Diet session to be convened in January. (October 16, the Nihon Keizai Shimbun)
The government has begun preparations to provide the nation's workers and companies with an enhanced safety net, anticipating the corporate shakeouts, which may result from stepped-up efforts to dispose of nonperforming loans at banks. The measures under consideration, which will seek to create more jobs and provide assistance for smaller companies, are to be incorporated into the anti-deflation package the government will draw up later this month. Currently, the government is ruling out any policy actions premised on the formulation of a supplementary budget. The government has yet to come up with any novel ideas about the planned safety net, and it is not clear whether the proposals advanced so far will produce any results. The Labor Ministry intends to make active use of its Special Fund for Emergency Employment Creation. The fund currently provides 300,000 yen to an employer who hires a worker who has been fired by another company. The ministry aims to increase the amount of such a grant. The program, which now applies to workers aged 45 to 59, will be made available for workers outside that age group. In addition, the ministry plans to outsource vocational training for the unemployed to private companies, and is considering training jobless workers as career planning consultants. These measures, however, constitute little more than minor improvements on existing measures and do not require additional spending. Labor Minister Chikara Sakaguchi has long argued that the issue of growing unemployment should be dealt with from a long-term perspective, and has instructed ministry staff to devise short-term measures only recently in response to the sharp stock market fall. The ministry, therefore, has come up with the above proposals in just several days, after being urged by the Cabinet Office to act. Regarding assistance for smaller companies, the government intends to double to just under 600 million yen the maximum amount of repayment guarantees for loans taken out by small firms. The program will apply to companies which have been denied loans due to the restructuring of financial institutions; are unable to obtain fresh loans because their outstanding debts have been classified as nonperforming after the loan claims were transferred from banks to the Resolution and Collection Corp. (RCC); and have been granted court protection from creditors in order to restructure. However, the funds set aside at the Japan Small & Medium Enterprise Corp. for the public loan repayment guarantee program, are expected to run out by the end of the current fiscal year due to a sharp increase in bankruptcies of small firms. The program may run a deficit of 1.5 trillion yen over the next four years. It will become impossible to offer fresh loan repayment guarantees unless the fund is replenished through a supplementary budget. If the government decides to draw up a supplementary budget, the Labor Ministry plans to offer grants worth 350 billion yen to temporarily hire redundant workers in the public sector as school teachers or foresters, and add more money to the 109 billion yen in funds budgeted as subsidies for giving more jobs to workers in emerging or growth sectors. Prime Minister Koizumi appears to be warming up to the idea of supplementary spending, but still says any final decision can wait until December. Thus, the anti-deflation package to be announced later this month will consist of measures that will not require supplementary spending. The Cabinet Office is said to have completely dismissed proposals by officials from some government ministries on the grounds that they would need to be funded via supplementary spending. Complaints are being heard in government circles because the government stance against an extra budget is tying ministry officials' hands. (October 13, the Nihon Keizai Shimbun)