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Business trends

Japan's temp staff faces 'May shock' bigger than financial crisis

Contract workers in line for mass layoffs without support from employers

Around 300,000 contract workers lost their jobs in the 2008 global financial crisis.

TOKYO -- Hundreds of thousands of Japan's temporary workers could be terminated at the end of May as businesses hit by the pandemic move to slash costs, causing an unemployment crisis far bigger than the one after the 2008 Lehman shock.

Contracts for temp workers are usually renewed on a quarterly basis, with notices for upcoming three-month stints sent out a month before the end date. Many contract workers received such notices at the end of February, spurring speculation of a "May shock."

"Over 100,000 temp workers are supposed to have their contracts renewed at the end of May," said a source from an industrial group. "That's the first hurdle in protecting the employment of temp workers."

After Japan eased restrictions on temp workers in 2004, the numbers have grown sharply to roughly 1.4 million. Since staffing agencies shoulder the burden of labor costs, companies are free to adjust their contract worker headcount as they see fit.

During the 2008 global financial crisis, roughly 300,000 temps lost their job within a year. The impact first hit the manufacturing sector, due to the drop in global demand. About half a year later, the wave reached industries tied to internal demand, such as product distribution.

This time around, there is no lag time between the manufacturing and nonmanufacturing sectors. The COVID-19 epidemic first dealt a blow to hotels and department stores, which rely on inbound demand from foreign tourists. The blowback soon struck manufacturers as well.

"During the Lehman crisis, the nonmanufacturing sector absorbed laid-off manufacturing workers, but now we can't expect that," said Mitsuji Amase, deputy research director general at the Japan Institute for Labor Policy and Training. "It's very likely that the loss of jobs will surpass the Lehman period."

Staffing agencies are required to pay leave allowances to temp workers that are let go by client companies, while looking for other employers to place them with. But as the pool of potential employers shrinks, labor costs at staffing agencies will balloon.

Most of the 20,000-plus staffing agencies across the country are small to midsize firms. A succession of companies ending contracts will force these staffing agencies to remove workers on their rolls.

Major staffing group Recruit Holdings is seeking a credit line of roughly 400 billion yen ($3.7 billion) from big banks to compensate temp workers dismissed by client businesses, Nikkei reported earlier this month.

To minimize the loss of jobs, support from automakers, retailers and other hiring companies will be key. Although these businesses will have their hands full keeping furloughed salaried employees on the payroll, similar considerations for temps will prevent mass unemployment.

Temp workers who have worked at the same company for over three years were granted new protections under laws passed in 2015. Staffing agencies either have to switch those individuals to indefinite contracts, or the client company has to hire the workers directly.

But companies have found a way around the rules.

"There's no progress in converting [temps] to regular employees, and it has become standard practice to end contracts before the [three year] deadline is reached," said a source at a major manufacturer.  

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