Commentary: Japan's Jobless Need More Than a Handout

By Irene M. Kunii

It has been a tough decade in Ota Ward, a community of small factories, tiny shops, and unassuming homes in southern Tokyo. Since the early 1990s, some 30% of Ota's 8,000 machi koba, or family-run factories, have closed as high-tech manufacturers shifted production to cheaper China and Southeast Asia. That trend will quicken now that the likes of NEC Corp. and Toshiba Corp. are cutting domestic production in the wake of slowing global demand. As a result, says Tomohiro Kozeki, the author of several books on machi koba, "many are now thinking about closing their shutters for good."

As it goes in Ota, so it goes in factory towns across Japan. Between January and July, the manufacturing sector has lost 440,000 jobs, or nearly 4% of its total. This has helped push the seasonally adjusted jobless rate to a record 5%, or nearly 3.4 million Japanese. Factor in people who have given up looking for work, and the unemployment rate exceeds 10%, according to the government Cabinet Office.

A REAL REMEDY? No surprise then that populist Prime Minister Junichiro Koizumi is vowing to address the problem. He has instructed his Cabinet to draw up proposals to help the jobless. He is aiming for a $17 billion spending package that would provide job training and extend unemployment benefits beyond the current limit of 11 months.

That's an encouraging start. But Koizumi and his Liberal Democratic Party will have to do much more than throw money at the problem: They must create the conditions that will allow ailing companies to downsize. That, of course, means Japan will have to learn to live with the chronic unemployment rates of other industrialized nations. And dealing with this harsh new reality will require a range of initiatives. Among them: accelerating deregulation of the economy so the private sector can create jobs, making it easier for companies to legally lay off full-time workers, introducing retraining programs, and finally, helping Japanese accept the idea that a job for life with one employer is history.

Pink slips don't exist in Japan. There are no laws prohibiting layoffs, but the courts have ruled that a company may only let workers go if it's facing bankruptcy. As a result, firms must wait until they are too sick to recover before they can take such a step. Companies need to be given more freedom so they can retrench in a slowdown--and then rehire as demand rebounds.

At the same time, the government needs to hack away the thicket of restrictions that protects domestic industries. Banking, telecom, trucking--they all labor under heavy regulations that keep competition to a minimum. Deregulation would enable others to enter the market and create jobs. For proof of the merits of liberalization, look at Japan's booming--and largely deregulated--wireless industry, one of the few growth areas in a mostly moribund economy.

The government also needs to rethink retraining. Last year, Tokyo gave up to $2,500 to workers taking courses in New Economy subjects such as software and Web design. But officials chose the courses and schools. Atsushi Seike, a labor economist at Tokyo's Keio University, has a better idea: allow a variety of institutions to take part and provide loans instead of subsidies. "Since it's an investment," he says, "these adult students will be much more serious about the programs they enroll in."

Ultimately, the Japanese public itself must change its attitude toward unemployment. The stigma of losing one's job is such that older workers often won't look for new work. Even if they do, age discrimination is so prevalent that few workers in their 50s land advertised jobs. Keio's Seike is lobbying for antidiscrimination laws that will make it easier for older and foreign workers to be part of a more mobile labor force.

As the global downturn clips demand for Japanese technology, the pace of restructuring in manufacturing is bound to pick up. That will further depress demand and force other sectors to revamp. And Koizumi's pledge to cut pork-barrel projects will hit the construction industry hard. Many of the country's 6.3 million hard hats could find themselves out of work. As he contemplates the growing ranks of the jobless, Koizumi can choose to ease the pain somewhat with a few extra benefits--or tackle the radical changes needed to move them back into the workforce.

Kunii writes about Japanese technology from Tokyo.

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