Commentary: Japan: Work-Sharing Will Prolong the Pain

A plan to save jobs will hurt productivity and consumer confidence

By Chester Dawson

Japanese executives will do just about anything to avoid firing someone. They buy people out, they move workers from one unprofitable unit to another, they force them to take less pay. Now there is talk in Japanese boardrooms, union shops, and policy circles of introducing yet another strategem: work-sharing, a concept that has been tried in Europe. It's a tempting idea. Tempting and dangerous.

The notion is deceptively simple: split the work day into more shifts and cut the number of working hours. In Japan, work days are often divided into two 10-hour shifts. This might be replaced with three 6-hour shifts--a cut of four hours per worker. The idea is already catching fire. Ball-bearing manufacturer NSK, carmaker Isuzu, and toilet producer Toto are considering the concept to preserve at least some work for redundant employees. Meanwhile, the finance minister is proposing subsidies to support such programs, while Prime Minister Junichiro Koizumi has ordered up a policy report.

EASING WORRIES. Advocates insist work-sharing will trim costs and save jobs. For starters, they say, companies would no longer have to pay overtime; workers now get time-and-a-half for the last two hours of their shifts. And if companies hired part-timers for the proposed third shift, they'd pay less salary and benefits. Finally, backers say work-sharing will boost domestic consumption. Says Kiyoshi Sasamori, chairman of Rengo, a union that represents 7.6 million workers, from factory hands to civil servants: "Work-sharing will ease worries about job security, encouraging consumers to buy."

There's some faulty logic at work here. To be sure, one reason the Japanese aren't spending more is because they fear job cuts amid record unemployment (chart). But equally critical is the fact that over the past four years, average monthly income has been falling--last year it's down 1.5%--because of pay cuts, shrinking overtime, and skimpier bonuses. Work-sharing means shorter shifts and smaller paychecks, which would only exacerbate the spending phobia.

Creating busywork for idle hands and imposing limits on wages and hours also is sure to weigh on productivity. Japanese manufacturing companies, which already pay a third more for labor than their American rivals and 30 times more than Chinese producers, can ill-afford that added burden. What's more, wages in Japan account for only about a third of the typical big company's per-employee cost. The rest comes from medical, housing, and other benefits, including such items as discounts for employees at company-owned vacation resorts and stipends for funerals. Union leaders such as Sasamori want these freebies extended to new hires as existing jobs are split up under work-sharing.

Such maneuvering would increase labor costs over the long haul. "Now isn't the time to rush into work-sharing," says Takashi Imai, chairman of Nippon Steel Corp. and the Keidanren business lobby. "The result will be lowered productivity, which simply isn't acceptable."

DILEMMA. Finally, work sharing does not address Japan's core dilemma: too many people in the wrong line of work. "Existing jobs don't need to be preserved, but destroyed," says Andrew Shipley, economist at WestLB Securities in Tokyo. "The problem isn't a cyclical downturn, it's a structural shift." Indeed, while bloated corporations are shedding redundant staff, some jobs in ascending sectors are going unfilled. Demand for computer technicians, health-care workers, and other service staffers will grow even as construction companies go bust and manufacturers move offshore.

Instead of underwriting the status quo, Tokyo should be promoting mobility in the workforce. That means funding retraining and making it easier to transfer pensions when people change jobs. In the longer term, greater competition for labor and growing tolerance for job eliminations will undermine Japan's cozy workplace traditions. The only way to cure what ails Japan is to stimulate--not stifle--workers' competitive juices.

Dawson covers business and economics from Tokyo.

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