Will Abe finally lead Japan towards labour reform?

Will Abe finally lead Japan towards labour reform?

During an interview with the Financial Times last week, the Japanese Prime Minister Shinzo Abe warned that labour reforms in Japan might be delayed due to fears of strong opposition to his reform program, as well as the need to have a more carefully explained and regulated reform plan to the public.

As part of his “Abenomics” campaign, Abe is extremely keen to press on with deregulation and increasing government spending and central bank stimulus. However, deregulation of the labour market remains a much-contended exception for the time being. The International Monetary Fund (IMF) has viewed the changes to monetary and fiscal policy positively so far, but warns of future global instability if labour structure and policy is not addressed.

On top of adjustments to government spending, Abe approved an increase in consumption tax from 5% to 8% starting from April 1st next year. Although Abe himself preferred an easing of business taxes along the lines of Germany, the finance ministry and some members of his coalition opposed this.

An increase in taxes is crucial to counter Japan’s growing debt, as the government’s debt as a percentage of GDP has increased from 191.8% in 2008, to 215.3% in 2010, and to an estimated 235.8% in 2012. On top of this, the increase in tax is a difficult political decision for Abe, as it has meant a fall for Japan’s previous political leaders.

Japan’s economic situation has caused increasing global concern, as it has the heaviest debt burden among advanced economies and its current account surplus continues to fall. This year saw a 63.7% decrease in Japan’s current account surplus, the biggest in almost two years. Its surplus was at 161.5 billion yen (1.03 billion pounds), compared to the median forecast of 549.0 billion yen, as announced in finance ministry data.

Although Abe, who became prime minister 10 months ago, admitted that relaxing job protections would allow Japanese companies to be more competitive on an international level while attracting more foreign investment, he announced that this will not be happening anytime soon. His position goes against the IMF’s suggestions to do so.

Lack of detail in labour market plans as laid out by Abe lead to disappointment on an international level. Within his explanation for the lack of an elaborate plan of labour reforms, Abe referred to the sensitivity of the Japanese people towards redundancies.

Japan is historically known to have a highly motivated labour force with extraordinary levels of loyalty to their employers, partly due to job security and the wage system. As those with the greatest seniority have the highest wages, employees developed strong connections with corporations, and were less likely to change occupation or employer.

However, the latest global and national economic trends have emphasized the need for change in Japan, as Japanese corporations are losing international competitiveness. The recent persistence of negative events at the nuclear power plant (often pointed out as a key reason for Japan’s trade deficit problems due to an increased reliance on energy imports) have highlighted these issues further and prompted the IMF to voice concerns for the future.

Categories: Asia Pacific, Economics

About Author

Margaux Schreurs

Margaux lives in Beijing and works as an editor at a Beijing-based magazine and website, and writes on a freelance basis for a wide range of publications throughout the world, mainly focusing on East and Southeast Asian current affairs. She is a London School of Economics and Political Science MSc graduate.