Some Japanese prime ministerial hopefuls want to make it easier to hire and fire workers By Reuters

By Makiko Yamazaki and Kentaro Sugiyama

TOKYO (Reuters) – At least two candidates vying to become Japan’s next prime minister plan to address one of the country’s most sacred political cows: labor market reforms that would make it easier for businesses to hire and fire workers .

Shinjiro Koizumi, the 43-year-old son of former prime minister Junichiro Koizumi, and Taro Kono, who as digital minister is trying to promote more innovation, have both called for easing Japan’s rigid labor rules.

These rules have been a feature of Japan’s “salaried-man” corporate culture for decades, dating back to when the country’s post-war population was growing and its traditional lifetime employment model was effective.

But rigid labor rules have more recently been blamed for blocking the movement of labor from mature to growth sectors, where workers are needed in a tight labor market.

“The ongoing labor market reform is missing the crux of the problem, and that is revising the dismissal rules,” Koizumi said this month.

“A final growth strategy is to create a system that favors a shift of labor to startups and small firms in growth sectors,” said Koizumi, who has pledged to introduce a labor reform bill next year , if he will be elected party leader.

Kono specifically proposed establishing a monetary compensation framework for laid-off workers as a way to resolve disputes, a step he said would allow more flexibility in the labor market.

Revising the dismissal rules is politically sensitive in Japan, having been repeatedly rejected with little progress in the past.

International bodies such as the Organization for Economic Co-operation and Development (OECD) have also long blamed a lack of employment flexibility for Japan’s low labor productivity, low rates of new business entry and the income gap between regular and non-regular staff.

On average, Japanese workers have been with their current employer for 12.3 years, compared to 4.1 years in the United States and 9.7 years in Germany. A Gallup poll found that only 6 percent of Japanese workers were engaged in their jobs, compared to the global average of 23 percent.

The statutory law on layoffs is vague, but court precedents have established four criteria that must be met, raising the bar for layoffs, experts say.

The rules, for example, require the company to demonstrate that there is an economic need to reduce its workforce and that every effort has been made to avoid redundancies when laying off employees.

“The biggest problem is that these rules are based on court precedents from decades ago,” said Kotaro Kurashige, a labor lawyer.

Japan’s Liberal Democratic Party, which has a parliamentary majority, will elect a new leader on September 27, with the winner replacing incumbent Prime Minister Fumio Kishida. A record nine candidates are in the race.

push back

As in the past, Koizumi and Kono’s political engagements have sparked strong reactions on social media and from unions, as well as from conservative lawmakers worried that such changes could lead to more layoffs.

“I strongly oppose any relaxation of rules that allow companies to fire workers freely,” Tomoko Yoshino, president of Japan’s largest labor organization Rengo, told an emergency study session last week.

Some also doubt the validity of the argument that relaxed layoff rules would help rejuvenate the economy.

“It may not be true that relaxed rules would promote a labor shift to growth sectors and overall wage growth, as laid-off workers may end up in low-paying jobs,” said Takuya Hoshino, an economist at Dai- ichi Life Research Institute.

Backlash forced Koizumi to scale back his commitment and shift his focus more to increasing support for workers to acquire skills and find new jobs, initiatives already launched by the Kishida administration.

Still, advocates say the opportunity for reform is greater now than in the past as Japan emerges from years of deflation, with companies delivering their biggest wage increases in three decades this year and the unemployment rate steady below 3 percent.

Suntory Holdings CEO Takeshi Niinami, one of the leading voices of corporate Japan, welcomed the issue that arose during the ruling party’s leadership race.

“These rules were created during the post-war economic boom centered on manufacturing and need to be revised,” said Niinami, who also serves as chairman of the Keizai Doyukai business lobby.

It’s a good time for such discussions because labor shortages and tougher competition for talent have started to drive up wages, he said. “I want the leaders of the new generation to discuss how to change all the post-war frameworks without any taboo.”