Regulation Reform on Labor and Employment

Atsushi SEIKE (Professor, Keio University)

Employment Security Through the Labor Market

The lifespan of employment for individuals tends to increase as the population ages. Meanwhile, the period of employment ensured by employers tends to decrease as technological innovation and economic deregulation progress. This means that there will be a lower probability that one's entire career can be spent at a particular corporation. Individuals should spend their careers by moving from employers that cannot maintain employment to employers that need new workers. We must build a system of employment security through the labor market in place of the current system of employment security by individual corporations. Labor market regulations should be reviewed from this standpoint.

Employment Policy for the Unemployed, Not for the Employed

In the labor market a "landslide" unemployment phenomenon is being observed. The unemployment rate, which was around 2% in 1990, increased to nearly 5% by the end of 2000. Unemployment is no longer a very rare event, but rather has become a risk that is one out of twenty.

Given this fact, the main point of employment policy should be shifted from the employed to the unemployed. There is often a conflict of interest between these two groups. Such a conflict may arise when it comes to subsidies for companies to maintain employment, regulations on temporary workers from employment agencies, unemployment insurance, regulations on firing, etc. In an era when anyone can become unemployed, however, it may be reasonable for the employed to be given concessions to improve conditions for the unemployed.

Upgrading Labor Market Functions

The first task in constructing this new employment policy is to upgrade labor market functions to provide an environment in which workers can move between companies as smoothly as possible. Regarding regulation, the following three measures are recommended:

1. improvement of employment information, and deregulation of private employment agencies with regard to charges, etc.
2. improvement of retraining programs, especially loans and tax exemptions for skill development expenses.
3. Abolition of age limitations in hiring, to be raised at least to 60 years old, the lower limit of the mandatory retirement age.

Encouraging Corporate Employment

The second task for putting in place a new employment policy is to create an environment that makes it easier for employers to increase employment. For that purpose it is essential to increase deregulation. The following are four deregulation measures, which may overlap measures proposed by the Ministry of Economy, Trade and Industry:

1. To increase short-term employment contracts, especially deregulation of applicable areas and approval criteria.
2. To increase the numbers of temporary workers from employment agencies, especially deregulation of employment duration and business categories.
3. To encourage discretionary work arrangements, especially deregulation of applicable areas and procedures.
4. To establish explicit rules for employment adjustment, especially procedural rules and information disclosure.

Approach to Increase Social Supporters

An increasing number of part-time and temporary workers should be recognized as a means of insuring more options in employment, and results in more employment and more "social supporters". Therefore, establishment of a system in which part-time and temporary workers pay social security contributions and other taxes is necessary. Otherwise, full-time and regular workers would have to bear more costs. Moreover, if employers cannot completely shift their social security burdens onto employees, the additional burden arising from part-time and temporary workers will be partly borne by those employers who employ full-time and regular workers. Therefore, the system of social security and other taxes should be fundamentally changed so that social security burden should be borne solely according to employment income, regardless of the form or kind of employment.

Deregulation Not an Effective Measure for Employment Recovery

Employment is a derived demand from production. Therefore, recovery of employment in macroeconomic terms would not be possible without recovery of production activities in the macro sense as well. Increasing labor mobility by deregulating employment is not a sufficient condition for the recovery of employment. Labor mobility without destination may well lead to more unemployment.

Deregulation of business in general might generate new demand for production and thus more employment. However, deregulation in a depressed economy as a whole will only facilitate the reallocation of the labor force and fail to create enough employment in net terms to fill the unemployment gap due to insufficient aggregate demand.

Deregulation is a very important element in pushing structural reform forward. In the area of employment, too, it is essential to restructure the regulatory framework in accordance with long-term structural changes in the labor market. However, we must not regard deregulation of business or employment as an effective measure to solve the short-term employment problem in the macro sense. The employment problem should be considered unavoidable in carrying out structural reform without macroeconomic policies.