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Economy

Five things to know about Japan's work reform law

It applies to foreigners too and represents a chance for wage hike for temporary staff

Illustration by Luis Mendo

TOKYO -- Japan's parliament passed a work reform bill on Friday, regarded by Prime Minister Shinzo Abe as the most important piece of legislation in the current session. In a country known for its long working hours, the law now limits overtime hours and raises the incomes of temporary and part-time workers who do not receive the benefits that regular company staff do. Lawmakers also compromised on an exemption scheme for white-collar workers after opposition parties raised concerns it could still expose professionals to the pressures of working long hours.

Here are five questions that people are asking about the reforms.

What is the new law about?

The law consists of three pillars. One is the implementation of "equal pay for equal work" in order to eliminate wage gaps between regular and non-regular employees.

The second is a cap of 100 hours a month on overtime, unprecedented since the Labor Standards Act took effect in 1947. Employees are limited to 720 hours of overtime a year. It comes into effect April 2019 for large companies and a year later for small- and medium-sized companies.

The third is a system of exemption for white-collar workers from overtime limits. It applies to those with annual incomes of more than 10.75 million yen ($97,500) and will include product developers, financial traders, bankers, consultants and researchers, among others. The exemption is thought to enable them to choose flexible working hours.

But the opposition pointed to it as a loophole that could still foster a culture of overwork. Subsequently, a provision was added allowing white-collar workers to give up the exemption status if they wish.

Why now?

Karoshi -- Japanese for "death caused by work stress" -- and the exploitation of workers has long been a problem in Japan. This was brought to national, and international, attention in 2016 after a 24-year-old employee at advertising firm Dentsu killed herself over work stress. Yet, labor shortage in Japan's aging society is also an urgent problem.

As such, Abe brought in the reforms to promote the "dynamic engagement of all citizens," aimed at revitalizing the country's economy and breathing new life to its social systems and structures.

Munetomo Ando, a professor of economics at Nihon University, said the government is trying to address labor shortage and job losses. To encourage people to join the workforce, it needs to ensure that companies are flexible enough to employ from diverse backgrounds and different ages. 

Japan's population has been in continuous decline since 2010. The work force is headed for an all-time low. But on the other hand, advanced technologies such as artificial intelligence could make redundant experienced, older workers.

Protesting worker Worker holds placard during the May Day rally sponsored by the Japanese Trade Union Confederation, known as Rengo in Tokyo on May 1.    © Sipa via AP Images

How has the public reacted?

Among the three pillars of the bill, the public is generally pleased with the policy on "equal pay for equal work" and the cap on overtime hours. The public was, however, divided on the exemption for highly skilled professionals.

"The white collar overtime exemption does not encourage overwork but puts value on the working style that gets results without depending on time," declared Hiroaki Nakanishi, chairman of the Japan Business Federation, or Keidanren, at a regular press conference on Monday. "The work reform bill is a challenge to increase the productivity of Japanese companies overall."

On the contrary, the president of the Japanese Trade Union Confederation Rikio Kozu strongly criticized the exemption system at the House of Representatives Health, Labor and Welfare Committee on May 22.

He said: "The exemption system will lead to the promotion of overwork. It is regrettable that this content, focusing on a completely different direction from the revision of overwork, is put together in the bill."

How would it affect you and your wages?

The new law is likely to raise the incomes of non-regular workers, and lower the incomes of permanent employees. The implementation of equal pay for equal work means that the treatment of those considered as cheap labor, including part-time, contract and temporary staff, needs to improve.

The effectiveness of the law is unclear though, since it is difficult to define "equal work," taking into account the extent of responsibility and contract burdens. Individual cases are to be judged in court. Shunichi Yamaguchi, director at Japanese consultancy Shinkeiei Service, believes that the impact on basic salary would be limited. However, the law and guidelines set by the government would secure equal allowances for things such as transportation and living costs.

Companies may decide to prevent the rise of employment costs by reining in benefits and income for permanent staff, according to Yamaguchi. Japan Post Holdings has abolished the allowances it paid as part of the living costs for some of its permanent workers this year. The move came after its contract workers sued the company for unequal treatment.

The new law would lower the total income for most of the workers and save on labor costs for corporations since extra hours are supposed to decrease. White-collar workers moving onto overtime exemption -- therefore no longer earning extra hourly pay -- may have to renegotiate for a higher salary to keep the same level of income.

The new law would impact foreign workers "in much the same way as it affects Japanese," according to Kosuke Oie, attorney-at-law at Tokyo-based Hiroo Park Law Firm. Japan's Organization for Technical Intern Training also said "foreign interns would be treated the same as Japanese workers on basic terms."

Any ripple effects to businesses?

Some companies are reviewing their IT systems to prepare for the reforms, and such moves are benefitting system suppliers. 

Time-management system maker Amano is planning to sell its human resource management systems to small- and medium-sized companies, enabling clients to monitor the real-time working hours of employees. The company forecasts its operating profit to increase by 11% in fiscal 2019 from two years ago to about 16 billion yen ($145 million).

Nomura Research Institute has provided an artificial intelligence system Traina to various companies including Mizuho Securities, to monitor phone calls from investors. Traina transforms contents of the call into texts with its voice recognition technology, highlighting the key points in the call which should be monitored. This has dramatically cut human working hours.

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